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The Significant Impact of Dropping Mortgage Rates

Mon, 22 Jul 2024 22:03:00 GMT

1% Less, 5 Million More: The Significant Impact of Dropping Mortgage Rates

In today's housing market, mortgage rates stand at about 7.5% for a 30-year fixed-rate loan. While these rates seem high compared to the historically low rates below 4% in 2020 and 2021, they are not unusually high when viewed through a broader historical lens.
"You have an entire generation of homebuyers that can't imagine rates above 6%," notes Danielle Hale , chief economist at Realtor.com, pointing out the generational shift in rate expectations. For those who remember the near 20% mortgage rates of the 1980s, today's figures seem more reasonable. This context is vital for understanding the current state of mortgage rates.

The Unlikelihood of Returning to 4% Mortgages

Despite hopeful buyers wishing for lower rates, experts, including those from Realtor.com, suggest that the days of 4% mortgages are not likely to make a comeback anytime soon. Predictions hold that rates might ease to around 6.5% by the year's end.
Historically, a 7% mortgage is more the norm, with 4% seen as an outlier. Understanding this can help set realistic expectations for buyers and investors in today's market.

The Current Housing Market Dynamics

Buyers and Sellers in a Holding Pattern

The housing market currently is experiencing a unique form of stasis. Potential homebuyers are delaying purchases in hopes of a decrease in interest rates, and sellers are waiting for better selling conditions. This waiting game has created an equilibrium where not much movement occurs on either side. Such a situation makes it challenging for the market to gain any momentum.

Federal Reserve's Influence on Mortgage Rates

Chair Jerome Powell of the Federal Reserve has indicated optimism about reaching inflation targets, which could lead to lower interest rates ahead of schedule. Traders have reacted to Powell’s recent statements and the latest inflation data by betting on rate cuts starting possibly in September, with more expected later in the year. This anticipation affects both current mortgage rates and market activity, giving prospective buyers something to consider when planning their purchases.

Strategic Mortgage Decisions for Prospective Homeowners

Why Waiting May Not Be Wise

Given the potential for mortgage rates to drop by 1%, an estimated five million additional buyers could enter the market. This increase in buyers could drive up home prices and competition, making it strategically sound to buy now and refinance later . Purchasing at current rates with the plan to refinance when rates decrease can maximize buying power and secure desirable terms in the long run.

The Advantage of Buying Now and Refinancing Later

For those looking to enter the housing market, the current rate environment suggests that buying sooner rather than later might be the best move. Securing a home now allows homeowners to take advantage of refinancing options when rates drop. This approach not only positions buyers to benefit from potential rate reductions but also secures their investment against price escalations.
In conclusion, while the allure of lower future rates is strong, the current economic indicators and market conditions suggest that taking action now, with a strategy to refinance later, is a prudent decision. This proactive approach ensures that prospective homeowners can navigate the market effectively, avoiding the pitfalls of waiting for a "perfect rate" that may not return in the near future.

Parents - Are you teaching your kids about credit?

Mon, 22 Jul 2024 20:40:00 GMT

Parents - what are you teaching your children about credit and credit scores?

Parents should teach their children about credit. Unfortunately, no other institution; be it banks, government or school, does this for us. They do not tell us that no credit is as bad as poor credit. They do not tell us that we might be unable to rent an apartment or secure a job if our credit scores are low. They do not tell us that we could pay thousands of extra dollars in interest if we have a mistake on our credit report.
Banks and educational institutions certainly do not think it is their responsibility to conquer the critical task of teaching children about credit. Because of all of this, parents would be wise to start teaching children about credit when they are young. Otherwise, parents might be sending children into a world that measures reputation by a three-digit credit score without a wink of knowledge about handling credit responsibly. Moreover, teaching children about credit, as well as how to manage credit, will help parents raise financially responsible adults, and it will open doors for children.
One method for teaching children about credit is to add your children as authorized users to one of your credit card account, so long as it is in good standing. This may sound crazy, so let me explain further; By adding your children as authorized users to an existing credit card account, you will give your children the opportunity to “borrow” your good credit score, which means their credit scores will begin to increase. At the same time, you can guard your credit by keeping credit cards away from your children. When you establish your children as authorized users, most credit card companies will send your children credit cards. You can request that the credit card company not issue a card to your children, or you can shred the credit card when it arrives. In this way, your children’s credit scores will benefit from the behavior on your account, and your credit will be protected. Though it is recommended that you add your children as authorized users before they turn 14 years old, you can add them at any age. After all, a two-year-old added as an authorized user will have 16 years of positive credit under his belt by the time he reaches adulthood.
The second part of teaching children about credit is to begin an educational platform whereby your children learn about interest rates, budgeting, savings, and credit scoring. Once your children begin demonstrating that they understand the value of money and are financially responsible, you might want to provide children with credit.
Start by establishing a Bank of Mom and Dad. If your son wants to buy something, lend him the money and create a weekly or monthly payment plan. Then insist on timely payments that include interest, just like a credit card company would do. If your child is late, assess a late payment fee as part of your strategy for teaching children about credit.
Once your child demonstrates continued financial responsibility, consider providing an actual credit card to your teenager. I suggest that you allow your child access to the card only long enough to hand it to a cashier, and only if you are present. This way, the child will not be able to memorize the credit card number, use it online, nor will he have prolonged access to your account.
As part of your strategy for teaching children about credit, make sure that your children pay interest and, if they exceed the prearranged limit or fail to make a payment by the due date, you should access an over-the-limit fine or late payment penalty. You should also insist that your children pay you instead of the credit card company. Because you are the primary cardholder, you can preserve your credit by making payments on the account regardless of whether your children are paying you.
When the credit card statements arrive, sit down with your children and explain the statements. Discuss your annual percentage rate, annual fees, late penalties, over-the-limit fines. Ask your children to verbalize their plans for paying their loans in a timely manner.
Expect your children to make mistakes and help them create plans for correcting their mistakes. If they splurge and end up owing more than they can afford, perhaps they can do extra housework in exchange for an increased allowance. And, of course, teaching children about credit means that you call their cell phones—perhaps at 8 on a Saturday morning—to inquire about any late payments!
It’s always best to make sure your own credit is in order so you can lead by example. If you need help in this area as well, please reach out to me for tricks and tips on how to improve your own credit score.
If you have any questions, feel free to contact me here !

Stay Secure: How to Shield Your Real Estate Transactions from Wire Fraud

Mon, 15 Jul 2024 21:13:00 GMT

Understanding Wire Fraud in Real Estate

Wire fraud , a term you might have encountered in fine print or during security briefings, represents a significant threat in the realm of real estate and mortgage transactions. Understanding the nature of wire fraud and implementing effective strategies to counter it is crucial. Here, we’ll explore what wire fraud entails, how it commonly occurs, and practical measures to protect yourself and your finances.

Understanding Wire Fraud in Real Estate

Wire fraud occurs when perpetrators deceive you into sending funds to fraudulent accounts. These criminals are adept, often using sophisticated techniques to make their requests appear legitimate.
For instance, if malware compromises your computer or that of a third-party involved in your mortgage process, it becomes easier for hackers to access sensitive information and craft convincing fraudulent communications. These may mimic legitimate emails from your real estate or mortgage professionals, complete with authentic-looking logos and email signatures.
A common tactic involves altering the instructions for your closing funds, directing them to a fraudulent account rather than the legitimate title company’s escrow account. These emails might even ironically warn you about the risk of wire fraud, making them seem more credible.

Proactive Steps to Prevent Wire Fraud

At Neo Home Loans, we prioritize the security of our clients by implementing robust security protocols and educating our borrowers about the risks of wire fraud. Here are some of the preventive measures we recommend:

Regularly Update Your Email Passwords: Changing your email passwords every 90 days or so is a simple yet effective way to enhance security.
Install and Update Anti-Virus Software: Ensure your personal and work computers are protected by reliable anti-virus software that updates and runs scans automatically.
Maintain Software and Operating System Updates: Regular updates can be annoying but are essential in keeping your devices secured against new threats.
Scrutinize Email Details: Phishing attempts can be highly sophisticated. For example, an email intended to deceive might use an address that closely resembles our official one, such as “@golum1nate.com” instead of “@goluminate.com.” Always verify the authenticity of emails.
Verify Wire Instructions by Phone: Before executing any wire transfers, confirm the details over the phone with a trusted mortgage professional, especially if anything in the email seems amiss.

Choosing the Right Lender for Security and Peace of Mind

The financial magnitude of purchasing or refinancing a home can make the process daunting. This makes choosing a trustworthy lender not just a preference, but a necessity. At Neo Home Loans, our commitment extends beyond providing excellent service; we aim to ensure that every transaction is secure, reducing the risk of wire fraud and giving you peace of mind. Our approach is not to alarm you but to prepare you, enhancing your ability to detect and avoid malicious schemes. By choosing a lender that not only values but actively invests in your security, you enhance your defenses against potential wire fraud, ensuring that your financial journey is both successful and secure.

10 Things to do after buying a home!

Mon, 08 Jul 2024 20:15:00 GMT

Welcome to your new home! We know that moving can be a stressful time, but it’s also an exciting opportunity to start fresh and make your new place feel like home. To help you settle in, we’ve put together a list of the 10 things you should do after moving in.

Change the locks: You don’t want any surprise visits from the previous owner, who still has a spare key. Plus, you never know who they might have given a key to – their ex, their nosy neighbor. You get the point. Make a list of home maintenance tasks: It’s important to keep up with home maintenance to prevent any costly repairs down the road. Make a list of tasks that need to be done regularly, such as changing air filters or cleaning gutters, and create a schedule to stay on top of them.
Update your address: The new tenants at your old place are probably unlikely to pay your bills for you! Make sure you complete an address change at your local post office so your mail gets its way to you!
Check your smoke detectors: There’s nothing like the sound of a smoke detector beeping every thirty seconds to ruin your day. And trust me, it will wait until 3 a.m. to start beeping. We’re not joking. It will!
Locate your circuit breaker: Label each switch so you know which ones control which part of your home. If you’re lucky, this will already be done for you. If not, this is easist as a two person mission. Find the main water valve: You don’t want to be looking for this when a pipe decides to burst on a cold winter night. Find out where it is now and make sure it works. This could save you thousands of dollars in damage if you ever need to shut it off.
Install a security system: Make your new home feel even more secure by installing a security system. There are many affordable options available that can give you peace of mind and protect your home from potential break-ins. You can buy easy to install, DIY kits right off of Amazon, and they won’t break the bank.
Set up utilities: Electricity? Check. Gas? Check. Water? Check. Funny story. My oldest son went over two years without paying his wastewater bill because the previous owner was paying it and didn’t realize it. Unless you have luck like that, make sure you’ve got everything switched so your utilities stay on during your housewarming party.
Meet your neighbors: It’s always good to have someone to borrow sugar from when you’re baking a cake on a cold day. Plus, they might even have some tips or advice concerning your neighborhood, HOA meetings, and possible neighbors to avoid! Enjoy your new home: After all the hard work of moving and settling in, take a break and enjoy your new home! Host a housewarming party, decorate your space, or simply relax and take in your new view. Congratulations on your new home! PS. If you decide to throw a party, don’t forget about Kim and your Neo Team!

Q&A Regarding Earnest Money

Mon, 08 Jul 2024 19:45:00 GMT

What is all this talk about Earnest Money?

Q: What is Earnest Money? A: Earnest money is given by the buyer to the seller when a real estate purchase contract is accepted. The money is a good faith offering to the seller that you will perform on the agreed upon contract.
Q: Why Do I Have to Submit Earnest Money? A: You don’t. Earnest money is a negotiable consideration in a real estate purchase contract and is not required by law. However, earnest money is usually required by a seller and if you refuse to submit a deposit with your contract, the seller probably won’t accept your offer.
Q: How Much Earnest Money Do I Offer? A: Typically, in our area, earnest money changes depending on the price of the home, but it is pretty standard practice that earnest money is 1% of the purchase price. For example, a home priced at $150,000 will request $1,500 of earnest money and a home priced at $500,000 will have an earnest money request of $5,000. Again, this is negotiable between you and the seller.
Q: When Is My Earnest Money Deposited? A: Each state is a little different, once your offer has been accepted by both parties, the earnest money deposit must be deposited usually within 3-4 days into the brokerage's real estate trust account or title company. Be sure to have the appropriate funds in your account. If you don’t, a bounced check could be a breach of contract and your offer will then become invalid.
Q: Who Holds My Earnest Money? A: In the first paragraph of the REPC (Real Estate Purchase Contract), it states the earnest money is to be deposited into the brokerage escrow (trust) account of the seller within 4 calendar days. Be careful who you allow to deposit your earnest money. Trusted real estate brokerages and title companies are probably the best place to have earnest money deposited, as they have highly regulated trust accounts. Developers or contractors don’t have the same regulations and it might be better to place your earnest money into the hands of a trusted title attorney until closing. Never give your earnest money to a seller and always get a receipt!
Q: Does My Earnest Money Earn Interest During the Contract? A: It depends. If the earnest money is deposited into an escrow trust account, then no, it does not earn interest as these accounts are non- interest accounts. If you have it placed in any other account that does bare interest, than it’s up to the buyer and seller to decide who receives any interest gained from the deposit.
Q: If I Cancel the Contract During My Due Diligence Period, Do I Get My Earnest Money Deposit Back? A: It depends on the contract stipulations and contingencies. In a real estate contract, the buyer has a few options to cancel the contract without losing their earnest money during the due diligence period. If, during the home inspection period and appraisal deadline, you’re not satisfied with the condition of the home or the home doesn’t appraise, you can cancel the contract and retain your deposit. Also, if you are unable to obtain financing during the financing contingency period, you may cancel the contract and retain your earnest money. It’s very important, if you don’t want to lose your earnest money, to stay within the deadlines of your contract. I have witnessed both agents and buyers blow off deadlines causing them to lose their deposits. It’s up to you and your agent to stay within the confines of the contract agreed upon, and if you don’t, be aware you could lose your deposit.
Q: What Happens If I Cancel the Contract After My Financing & Appraisal Deadline? A: If, after the expiration of the financing & appraisal deadline, you fail to obtain a loan, then either you or seller may cancel the REPC with written notice. After written notice of cancellation, your earnest money will be released to the seller as it states in the contract. You may also extend the deadlines if the seller agrees, if not, then your earnest money will be forfeit.
Q: What If There Are Damages to the Property Before We Close? A: As stated in the REPC, if the property is damaged or destroyed by fire, vandalism, flood, earthquake, or act of God, the risk will be placed upon the seller if the damage exceeds more than 10% of the purchase price, at which point, either party may cancel the REPC and the earnest money deposit will be returned to the buyer. Basically, if the property is damaged during contract negotiations, the seller has to pay to fix it or you can walk.
Earnest money is very important to a real estate contract and must be taken seriously. If you don’t want to lose your deposit, be sure to stay on top of your dates in the contract. If, for some reason, you can’t stay within the dates of the contract, your agent should be smart enough to ask for an extension or cancel the contract before you lose your earnest money.
Original article can be found at: //www.lisaudy.com/earnest-money.php

Overcoming Housing Market Fears

Wed, 08 May 2024 20:56:00 GMT

Overcoming Housing Market Fears

The recent headlines broadcasting mortgage rates surpassing the 7% mark have instilled a sense of apprehension among potential homebuyers. In a market perceived as increasingly unaffordable, it's easy to feel discouraged. However, with the right mortgage strategy, you can transform this challenging market into an opportunity.

Historical Perspective on Mortgage Rates

While current rates hovering around 7% seem daunting, a historical review reveals a broader context. During the early 1980s, mortgage rates soared to 18% and even in more stable times, rates have frequently fluctuated above 10%. This historical perspective is vital because it demonstrates that while today’s rates are higher than in recent years, they remain within a historical long-term normal rate range.

Impact of Job Growth on Housing Demand and Prices

Recent job market data presents a mixed but overall positive picture that could significantly influence the housing market. In March, the economy added a robust 303,000 new jobs, exceeding expectations, and revisions to prior months added another 22,000 jobs. The unemployment rate also dipped to 3.8%, signaling strong economic momentum. These indicators suggest a growing number of people entering or re-entering the workforce, which traditionally boosts housing demand as more individuals and families gain the financial confidence to purchase homes.

Increased Buyer Competition

The influx of new jobs and the overall decrease in unemployment are likely to lead more people to consider buying a home. As more individuals gain employment, the pool of potential homebuyers increases, leading to heightened competition in the housing market. This is particularly relevant in today’s environment, where housing inventory remains relatively low across many regions. Increased competition among buyers can naturally drive-up home prices, especially in desirable areas with extremely limited supply.

Appreciation Trends in Real Estate

The real estate market has consistently appreciated over the years, a trend that is likely to continue due to ongoing supply constraints and robust demand. Delaying a home purchase in anticipation of falling rates could result in higher prices later. Moreover, the longer you are in a home, the higher percentage of your payment goes towards principal reduction. This is called amortization, which is the math equation that determines how your mortgage balance will be paid off. In the first few years, most of your payments go towards interest costs, the longer you are in the home, the higher percentage of your payments go towards reducing your principal balance. Delaying buying both leaves you exposed to higher real estate prices and delays you from getting deeper into your mortgage loan where more of your payment goes towards principal.

Example Scenario:

Imagine you are eyeing a $300,000 home today. With an average appreciation rate of 4% per year, the same home could cost about $312,000 next year. By waiting, not only do you pay $12,000 more, but you also lose a year’s worth amortization (paying down the loan balance).

Financial Drain of Renting:

Continuing to rent while waiting for the perfect economic conditions means every rent check is an investment in someone else’s financial future. Renting offers no return on investment through appreciation or amortization.

Strategies to Win in Today’s Housing Market

Fully Underwritten Pre-Approval:

This step demonstrates to sellers that your financials are thoroughly vetted, significantly strengthening your offer in a competitive market. If you are going to complete against multiple offers, why not be the most prepared offer the seller will see?

Convert to Cash with NEO’s Power Buyer Program:

By making a cash offer, you bypass many of the hurdles that come with loan financing, making your bid far more attractive to sellers.

Exploring Grant Programs:

Programs like those offered by NEO can cover up to 2% of your down payment, reducing your upfront costs and facilitating easier entry into homeownership.

Adopting a Strategic Mindset:

The philosophy of "marry the home, date the rate" encourages purchasing the right home now and refinancing if and when rates drop. This strategy ensures you start building equity immediately and can take advantage of lower rates later.
Despite the headlines highlighting soaring mortgage rates, it's important to understand that residential real estate prices have appreciated 74 out of the last 82 years. That means home values go up 90% of the time.
Carefully review the chart below that shows real estate prices going up in green , versus prices going down in red . Despite prior periods of elevated mortgage rates, home prices are much more likely to go up than down.

As rates are now on the rise, it may very well create an opportunity where a seller is willing to contribute towards a temporary interest rate buydown. What questions do you have and how can I help you?

Mastering Your Credit Score: The Key to Unlocking Your Dream Home

Mon, 01 Apr 2024 21:47:00 GMT

Mastering Your Credit Score: The Key to Unlocking Your Dream Home

Understanding the role of your credit score is paramount in the journey to homeownership. It's the linchpin that can either smooth the path or create hurdles when seeking a mortgage. At Neo Home Loans, we recognize the significance of this aspect in your homebuying endeavor.

Is Your Credit Really Important When Buying a Home?

According to insights from financial institutions like US Bank, your credit score holds considerable sway in the mortgage approval process. It reflects your financial behavior, from payment punctuality to debt management, and even influences the mortgage rate you qualify for. As highlighted by US Bank: “A credit score isn’t the only deciding factor on your mortgage application, but it’s a significant one. So, when you’re house shopping, it’s important to know where your credit stands and how to use it to get the best mortgage rate possible.”
With mortgage rates playing a pivotal role in affordability, your credit score assumes even greater importance in your homebuying equation. Statistics from the Federal Reserve Bank of New York indicate that the median credit score for mortgage applicants in the US stands at 770. However, perfection isn't a prerequisite. As emphasized by US Bank :
“Your credit score (commonly called a FICO Score) can range from 300 at the low end to 850 at the high end. A score of 740 or above is generally considered very good, but you don’t need that score or above to buy a home.”

Should I Improve My Credit Score Before Applying for a Mortgage?

Collaborating with a reputable lender offers invaluable insights into how your credit score influences your home loan and eventual mortgage rate. As articulated by FICO :
“While many lenders use credit scores like FICO Scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable. There is no single “cutoff score” used by all lenders and there are many additional factors that lenders may use to determine your actual interest rates.”
For those contemplating credit score enhancement, here are a few steps to consider:

Payment History: Timely payments are pivotal. Addressing any late payments promptly can mitigate negative impacts on your score.
Debt Utilization: Keeping credit utilization low is advantageous. Aim to maintain a healthy balance relative to your credit limits.
Credit Applications: Prudent credit management involves refraining from unnecessary credit applications, as each inquiry can dent your score.

What’s the Next Step?

In essence, optimizing your credit score could translate into securing a more favorable mortgage rate. For personalized guidance on improving your credit standing, consult with a trusted lender like Neo Home Loans. Our expertise and tailored solutions can empower you on your journey to homeownership. Reach out to me today! kim.renquest@neohomeloans.com

Buy Your New Home Now, Sell Later (Formula for Low Stress & Maximum Profit)

Wed, 21 Feb 2024 22:51:00 GMT

In today's fast-paced, ever-changing real estate marketplace, moving homes without the immediate need to sell an existing residence provides an unmatched level of flexibility and strategic advantage to the process.
In an environment where the movement of interest rates and market dynamics is so erratic, the traditional process of buying and selling can be very intimidating. But the historical record is clear, it pays to invest in real estate. How? Well, since 1942, homeowners who have held their properties for a decade or more have never failed to realize gains on their investments in all but one period.

Despite unfavorable current interest rates and market conditions, opportunities to invest in a new home still exist. Intrinsic value and historical growth trends highlight that there are still considerable benefits to be achieved in the longer term. All in all, the best solutions to be traded are those with a good balance between low risk and high profitability.
One available solution is our Power Buyer program, which allows you to make a strong cash offer for your new property even before you sell your existing one. It increases your bargaining position, of course, but it does so much more: it takes the uncertainty out of a contingent offer, making your proposal more attractive to sellers.
Here are a few more products and programs that could help you on your financial journey:

Home Equity Line of Credit (HELOC): Unlock the value trapped within your current home using a HELOC and secure the needed funds for down payments or home improvements to increase marketability. By using it, the only time the costs come into play is when the money is used, so it might be a wise preparatory step before the entrance into the market.
Bridge Loans: Tailored to transition, bridge loans offer an amount equal to part of the value of the existing home as immediate cash to make it easy to purchase the new property without an urgent need to sell. No ongoing payments are required; what's more, the fee structure often undercuts traditional loan costs, buying sellers some breathing room to sell at the optimal time.
Buy and Hold Strategy: Keep your current house as a rental property, leveraging prospective rental income for qualifying to purchase your new house. This not only maintains your investment but also taps into potential rental market gains, offering yet another avenue of income. For those with financial flexibility, retention of the existing property as a long-term investment capitalizes on market growth, diversifying your investment portfolio.
Proof of Pending Sale: Demonstrate that your current home is under contract – this can alleviate the need to cover two mortgages, easing the financial transition between properties.

Beyond the Sale: The Long-term Vision

Considering the long-term vision, converting your current home into a rental property presents another viable option. It can be a way of putting off the decision to sell in a potentially fluctuating market, as well as initiating an opportunity for ongoing passive income coupled with long-term asset appreciation.

Your Financial Journey, Our Expert Guidance

Our role is to illuminate the best options for your unique journey, ensuring your new home meets both personal and financial aspirations. In this market landscape that keeps changing with every passing day, your decision to invest in a new home means more than just buying a place to live in. It means the first movement towards financial growth and stability.

Move a Step Ahead

We invite you to explore these innovative offerings designed for your journey. Act now for a seamless transition through our Power Buyer program, or to capitalize on strategic rental income benefits. Connect with me to chart a course to your new home, grounded in expertise and driven by your vision for the future.
Set an appointment - https://calendly.com/kim-renquest Give me a Call - 720-740-0567 Send me an Email - kim.renquest@neohomeloans.com

Factors That Will Impact Your Mortgage Rate In 2024

Mon, 22 Jan 2024 22:48:00 GMT

Factors That Will Impact Your Mortgage Rate In 2024

There are a few really important numbers when it’s time to obtain a home loan: your credit score, the amount you want to borrow, and the interest rate. The news is full of talk about interest rates lately. Will they go up? Will they go down? Will they stay down?
It’s a losing battle to follow the news on mortgage interest rates on a daily basis if you’re hoping to lock in the best possible loan rate. However, you can certainly get a sense of key trends by keeping your eyes and ears open when it comes to the economy and the bigger picture of the housing market.
However, before you do that, you’ll want to make sure you understand what factors are at play that will be influencing mortgage rates in 2024.

Economic Health & Supply and Demand

The overall economy affects mortgage rates. When the gross domestic product (or GDP) and employment rise, it’s a sign of a growing economy, so there is a greater demand for goods and services, including real estate. A growing economy creates competition from those wishing to borrow money. This demand causes interest rates to rise.
The opposite is true in a slowing economy. When demand falls, interest rates tend to go down.
In terms of home loans, the “supply” is the money (or credit) available to lend. A high demand for mortgages means banks have less money to lend; therefore, the cost of a loan goes up via higher interest rates.
This also means that when there is more money to lend, or an increase in the supply of credit, the cost of borrowing goes down in the form of reduced interest rates.
Another factor is how other debts impact a bank’s ability to lend money. For example, a missed credit card payment or mortgage payment will reduce the amount of credit available in the market. When the credit supply tightens, that creates higher interest rates.

Inflation

Everyone is affected by inflation. You, your mom, your dry cleaner, and even your bank.
Inflation occurs when the money supply used to purchase products exceeds the products available for purchase. The bigger the gap, the higher the inflation. Put another way, a high rate of inflation means your dollar doesn’t go as far. You have to do more with less.
Higher inflation will typically cause Treasury yields and mortgage rates to rise as well. This occurs because investors demand higher rates as compensation for the decrease in the purchasing power of money they are paid over the course of the loan.

The Federal Reserve

When the Federal Reserve raises or lowers the federal funds rate, which is the rate lenders charge one another, it can create a ripple effect resulting in higher or lower mortgage rates. While the Fed Rate doesn’t have a direct impact on mortgage rates, it impacts several markets across the globe, and the effects are felt in the mortgage market.
The fed funds rate can be as low as zero, and it affects the bottom line of those offering credit. When the Fed is trying to control inflation, or cool the market, they start raising this rate in increments over time. When they’re trying to spur the economy, they start lowering the fed funds rate. Recently inflation has started to cool, a signal that the rate increases over the past few years have worked and are bringing inflation back down. As a result, the Fed’s hikes have gotten smaller and less frequent. In fact, there haven’t been any increases since July.

And not only has the Fed decided not to raise the Federal Funds Rate the last three times the committee met, they’ve signaled there may actually be rate cuts coming in 2024.

Your Credit Score

No surprise here. Mortgage lenders want to feel confident that you’ll pay back your loan. They’re willing to trade a lower interest rate for this peace of mind.
Though every lender and loan program is different, borrowers with a credit score above 720 typically qualify for the best interest rate offers.
Having a strong credit history, one that includes a lengthy track-record of consistently paying bills in a timely manner and maintaining low balances on lines of credit, drives your credit score upward. This is generally the type of profile prospective lenders like to see.
But don't worry if your credit isn’t perfect.
Before applying for a mortgage, it’s a good idea to check your credit score and do what you can to improve it if there are any areas of concern. If you still have some time before you need to apply for a mortgage, actively work on boosting your score. I’m always available to discuss your unique credit journey and homeownership goals with you.

Your Loan-to-Value Ratio

Yet another consideration for lenders when developing interest rate offers is your loan-to-value ratio (LTV). This is essentially a comparison between the amount of the loan you’re seeking and the value of the property you hope to purchase.
Borrowers who have a more substantial down payment for their home purchase—which lowers the amount to be borrowed —have a lower LTV. This is a good thing from the lender’s perspective because borrowers who have a more sizable down payment tend to be a lower risk.

The Bottom Line

Mortgage rates have come down in recent months. We are still optimistic that 2024 will continue to bring lower mortgage rates and provide some relief for homebuyers.

This won’t be an immediate drop to 5% mortgage rates. We will likely see some ups and downs in the months ahead, but the recent economic reports are clear indicators that the trend has reversed from higher and higher mortgage rates to lower rates ahead.
If you are not ready to make a move just yet, here are 3 steps you can take now to prepare for when the time is right:
1. Schedule a meeting with a me (even if you are not ready to buy!) It’s always best to do this sooner rather than later. No credit check or application needed – we will just discuss your options and put a plan in place so you can move quickly when the time is right. https://calendly.com/kim-renquest
2. Choose a loan program. Every mortgage program has unique benefits and different requirements to qualify. If you learn about these now and choose the one that makes sense for you, you will have a solid roadmap for what you need to do to prepare for your purchase.
3. Start improving your finances. Once we’ve decided on the best mortgage strategy, the rest of the time will be spent here. Get your down payment in order, make sure you have all your income and asset documentation, pay off any debt you need to improve your credit score, and start planning for your new housing payment.
Preparation is key in this market! Starting the process early will make sure you are able to submit an offer on a home right away and lock in a lower rate when the time is right. If you would like to know exactly what you need to do to prepare for a home purchase, schedule a consultation with me. (https://calendly.com/kim-renquest) I will answer all your questions and create a detailed loan comparison and action plan so you can be ready to submit an offer and move quickly when the time is right.

House Hacking: How to Save Money and Build Wealth with a Multi-Unit Property

Mon, 11 Dec 2023 23:03:00 GMT

House Hacking: How to Save Money and Build Wealth with a Multi-Unit Property

On average, Americans who are able to build significant wealth do so through creative use of real estate investments. In the long run, owning a home will always be better than renting for life. However, if you’re willing to “house hack,” purchasing your own home could catapult your net worth even faster.
Broadly speaking, house hacking is the practice of owning a property and having your tenants pay your mortgage for you. This can be done by renting out a spare bedroom or basement, building an accessory dwelling unit (ADU) on the property, or buying a multi-unit property (duplex, triplex, or fourplex) and renting out the units you are not living in.
House hacking is a smart way to reduce or completely offset your monthly mortgage payments while being able to own 100% of the equity in the property and benefit from appreciation. Whether you are a seasoned real estate investor or a first-time homebuyer, house hacking can be a powerful path to financial freedom.

Benefits of House Hacking

The greatest benefit of house hacking is that because you will actually be living in the property, you have access to residential mortgage programs that come with lower interest rates and lower down payment requirements than most investment property loans.
Investment properties can require down payments as high as 25 to 30 percent, but you can purchase a primary residence with as little as 5 percent down. FHA loans have down payments as low as 3.5 percent and can be used to purchase properties of one to four units. Veterans can even use VA loans to purchase primary residences with no money down!
House hacking also allows you to take advantage of the tax benefits associated with home ownership, while saving on taxes by deducting rental-related expenses and accounting for depreciation. Hacking allows people with modest incomes to live in nicer areas, pay off other expenses, or to make repairs they might otherwise need to defer.
By adopting a house hacking strategy, you get to significantly reduce or even eliminate your monthly mortgage payments. The rental income generated can cover a large portion, if not all, of your mortgage, taxes, and insurance. Over time, as you build equity in your property, the financial benefits can extend beyond just covering your living expenses.
Remember, rent prices increase while your monthly mortgage payment remains fixed over the life of your loan!

House Hacking Cost Scenarios

NOTE: The scenarios shared below are purely illustrative and may not reflect the actual financial dynamics in different parts of the U.S., where rent costs and property values vary widely.

Scenario 1: Purchasing a Duplex for $450,000

Down Payment: 3.5% of $450,000 = $15,750
Loan Amount: $450,000 – $15,750 = $434,250
Monthly Mortgage Payment (at 7% interest rate over 30 years): ≈ $2,888
Rental Income (assuming $1,600 rent from the other unit): $1,600
Net Monthly Payment: $2,888 – $1,600 = $1,288

Scenario 2: Purchasing a Triplex for $750,000

Down Payment: 3.5% of $750,000 = $26,250
Loan Amount: $750,000 – $26,250 = $723,750
Monthly Mortgage Payment (at 7% interest rate over 30 years): ≈ $4,819
Rental Income (assuming $1,600 rent from each of the other two units): $1,600 * 2 = $3,200
Net Monthly Payment: $4,819 – $3,200 = $1,619

Scenario 3: Purchasing a Fourplex for $1,100,000

Down Payment: 3.5% of $1,100,000 = $38,500
Loan Amount: $1,100,000 – $38,500 = $1,061,500
Monthly Mortgage Payment (at 7% interest rate over 30 years): ≈ $7,069
Rental Income (assuming $1,600 rent from each of the other three units): $1,600 * 3 = $4,800
Net Monthly Payment: $7,069 – $4,800 = $2,269

With the increased rent amount, the net monthly payment in each scenario is reduced, illustrating how higher rental income can further offset your monthly mortgage payment in a house hacking setup. SOURCE: JVM Lending

You Can Now Purchase a Multi-Unit Property with Only 5% Down!

When it comes to house hacking, the best way to earn the maximum amount of financial benefit is to go big by investing in properties with two, three, or four units. This allows you to own multiple completely separate units, have your privacy in one of them, and get top dollar in rental income without having to invest even more money into finishing a basement or building an ADU on your property.
In the past, purchasing a multi-unit property meant shelling out 15-25% for down payment. However, new conventional loan guidelines allow you to buy a two-to-four-unit property with only 5% down.
With this new program, you will be able to save money on your home purchase and start building wealth in more ways than one:

Own multiple income-generating properties without having to save 15-25%.
Generate rental income to help cover your new mortgage payment.
Use projected rents as income to help you qualify.
Start building equity right away.
Have some extra cash to tackle high-interest debt and save even more money every month.

This new program offers a fantastic chance to generate rental income and/or ease the burden of mortgage payments with only modest upfront costs. And to make things even easier, you will be able to use the projected rents from the other units as income to help with qualification.

The Bottom Line

As housing has become increasingly less affordable, purchasing a multi-unit property to live in and renting out the other units is a great way to own a home without breaking the bank – and now, this strategy is a lot more affordable!
If you’d like to explore your options for buying a multi-unit property with minimal cash investment, reach out to me directly at kim.renquest@neohomeloans.com or set an appointment to chat at https://calendly.com/kim-renquest .

Why The No-Cost Refinance Makes Sense - Buy Now, Build Equity, and Save Big in 2024

Mon, 27 Nov 2023 18:53:00 GMT

Why The No-Cost Refinance Makes Sense - Buy Now, Build Equity, and Save Big in 2024

Owning a home is a crucial part of finding financial freedom, but deciding when to make the move into homeownership is never an easy decision. That decision is especially hard today with home prices and mortgage rates at record highs.
Buying a home now would likely come with a housing payment that is significantly higher than you would like. But waiting to buy until next summer, or until rates drop, will likely mean more competition, higher home prices, and less ability to negotiate on your purchase.
This is where the no-cost refinance comes in. While mortgage rates are high, many homebuyers have chosen to buy now and refinance for free later. This gives you the ability to jump into homeownership now, immediately benefit from paying down your mortgage balance, lock in your home price, and eliminate the gamble that home prices and mortgage rates will fall at the same time (spoiler alert: they never do.)
An economic recession is all but inevitable now , despite the government stimulus that delayed for much longer than expected. When the economic slowdown comes, mortgage rates will drop and allow those who bought at higher rates to refinance into much lower rates - usually at no cost.

Understanding Refinance Closing Costs

Closing costs are the dollar amounts it costs to get a mortgage done. There’s an appraiser, loan processor, underwriter, title or escrow officer, recording fees, credit reports, transfer taxes – you get the point. There are a lot of parties involved in writing a mortgage, and everyone needs to get paid. This is true whether you're buying a new home or refinancing an existing mortgage.
Typically, there are three different buckets of costs or fees associated with refinancing a mortgage:

Lender fees are the costs associated with taking your loan from application to closing. While these kinds of fees typically include an application fee, credit report fee, origination fee, processing fee, and an underwriting fee, the full list of what you pay will vary depending on the lender you choose.
Title fees are the third-party costs associated with the sale of the property or refinance of the loan. You might also hear these called escrow fees depending on where you live. The amount and type of title fees you pay will vary depending on the state and property type, but typically include the costs associated with title insurance, attorney fees, settlement fees, recording fees, etc.
Prepaids are the upfront payments that need to be made to cover certain expenses in advance. Prepaids commonly include monthly homeownership expenses like homeowners’ insurance premiums, property taxes, and any mortgage interest that accrues on the loan from the closing date through the end of the month before your first payment.

What is a No-Cost Refinance?

When a lender advertises a no-cost refinance, they are saying they will offer you a credit to offset the lender, title, and other third-party fees. This is usually done in exchange for a slightly higher interest rate than you would receive if you chose a traditional refinance and paid all your closing costs out of pocket.
With most no-cost refinances the only costs you will be responsible for are the prepaids. These costs can vary widely depending on the location of your property (for property taxes) and when you close your loan (for prepaid interest). You can either pay these upfront costs when you close, but often your lender can roll them into your new loan amount, so you truly do not have to pay anything out of pocket.
This might make you question the "no-cost" part of your refinance, but prepaids are not really considered closing costs. Even if you did not refinance, you would still be paying property taxes, homeowner's insurance, and mortgage interest. Getting a new loan just means you pay a few months' worth of these costs upfront to get your escrow account funded with enough to pay taxes and insurance when due.
Keep in mind you will also likely get a refund from your previous mortgage escrow account. When you refinance, your original loan is completely paid off, and any balance you had left in that escrow account will be refunded to you in the form of a check issued by your old mortgage servicer typically within 30 days. You could always put that escrow refund from our previous loan, to work by paying down the balance of the new loan.

When Should You Consider a No-Cost Refinance?

In a market where rates are expected to go down, no-cost refinance is one of the savviest tools you can use to save money both short and long term.
If you bought a home today, it's very likely that you will have multiple opportunities to refinance your loan and capture savings before rates settle at their cyclical bottom.
If you refinance and pay closings costs, then refinance again as rates continue to drop, it’s likely you won’t have recouped all the closing costs from the initial refinance.
Let's say you bought a home today, and six months from now you can refinance and save $250 on your monthly payment. Assuming you added the closing costs of $8,000 into your new loan, you would have to keep your loan for 32 months to breakeven. If you refinance again any time before that, you will have lost money.
A no-cost refinance eliminates this risk, even if the rate for the no-cost refinance is a little higher. Let’s say the monthly savings are only $200. With $0 closing costs, even if you refinance again in one year, you will have saved $2,400.

The Bottom Line

In today’s market where interest rates are expected to fall considerably, a no-cost refinance can be a simple and risk-free way for homeowners to save money.
While rate is certainly an important consideration, along with the term of your loan, a no-cost refinance can eliminate the risk of paying double or even triple closing costs in a market where rates decline substantially. Nobody knows where the bottom of the market is, or what the lowest rate will be in the future, but if the savings make sense and you can get those savings without costs, a no-cost refinance can be a great way to reduce your monthly payment and save you money.
At NEO Home Loans, our goal is to make sure you know exactly the rate at which it makes sense to do a no-cost refinance. My team and I constantly monitor your loan relative to the current market conditions, and whenever there is enough of a benefit for you, we will proactively reach out to you and offer to refinance your loan at the most advantageous loan structure possible for your unique situation.
This is what we like to call our Mortgage Under Management strategy. Where we constantly keep eyes on your existing loan, relative to what rates are available in the market, so you never have to worry if you are in the best possible mortgage. If I’m doing my job right, the closing of your first home loan with me, is where our relationship begins.

Debt-Consolidation Refinance: Use Your Home Equity to Pay Off Debt and Save Money

Fri, 17 Nov 2023 18:53:00 GMT

Even if you have a low rate on your mortgage, do you know how much you’re paying in interest each month for your credit cards, vehicles, and other personal debts?
Managing debts with high interest rates can feel like an uphill battle. Monthly debt payments take over a large chunk of your income, and it can feel like it will take forever to pay off the amount you owe. And with inflation and interest rates still elevated, more and more people are racking up balances and falling behind on their monthly debt payments.
Taking control of your finances and reducing debt can greatly reduce stress and provide a sense of financial freedom. If you find yourself overwhelmed with multiple debts, a debt consolidation refinance can help you consolidate your bills and simplify your financial obligations.
Let’s explore what a debt consolidation refinance is and how you can use it to secure a strong financial future.

How Does a Debt-Consolidation Refinance Work?

To understand how this works, we need to discuss equity. Equity is the difference between what you owe on your mortgage and how much your home is worth. A debt-consolidation refinance allows you to tap into your earned equity to access cash and pay off debt.
Here’s a hypothetical situation: you bought a house for $200,000 with a $180,000 loan. Five years have passed, and now you owe $160,000 on the mortgage. The home has also appreciated and is now worth $300,000, which means you have $140,000 in equity.
Most debt-consolidation (or cash-out) refinance programs allow you to access up to 80% of your equity, so in this case you would be able to receive up to $112,000 to pay off any other debt balances you have (car loans, credit cards, medical bills, student loans, etc.). These debts are essentially wrapped into your mortgage, resulting in just one monthly payment.

Does a Debt-Consolidation Refinance Actually Save You Money?

Even though mortgage rates have been hovering in the 7% range lately, mortgages are still one of the least expensive ways to borrow money.
Paying off your credit card debt that has 20% interest or your car loan that has 11% interest can save you a significant amount of money and minimize your bills. Mortgage debt is also secured and has a fixed interest rate, so your payment will be the same over time compared to a credit card bill that is variant and compounds depending on how much you choose to pay each month.
It is important to note that this does not make your debt disappear. You are still paying it off, just at a much lower interest rate. This can save you money and improve your monthly cash flow by eliminating excess bills. Another perk is that mortgage interest is typically tax-deductible while other consumer debt is not.

Don’t Forget About Closing Costs

You also need to understand how closing costs play into your decision. Closing costs are lender fees and third-party fees you pay when getting a mortgage. You must pay these on a refinance just like you did on your original mortgage.
Closing costs vary but will usually be several thousands of dollars. While these costs can often be rolled into your new mortgage rather than paid with a lump sum of cash (also called a no-closing cost refinance), they are going to add to your overall debt balance. This is money that could potentially go towards paying down your existing debts.
To determine if a debt-consolidation refinance is financially beneficial, you must weigh these closing costs against the overall interest savings you stand to gain from consolidating your debts.
A debt-consolidation refinance is not meant to be an escape from debt problems, but it can be a win-win situation when used as part of a responsible plan to manage your finances.

Debt-Consolidation Refinance Example

John owns a home worth $650,000, with a current mortgage on the property of $300,000 at a 3.75% interest rate. John experienced some financial strain related to a job loss in early 2020 when COVID became a global pandemic, and he has been struggling to pay off the $50,000 in credit card debt he accrued during that time.
With an interest rate of 17%, John’s credit card debt is costing him $703 per month in interest expense alone. He had considered consolidating the debt into his mortgage, but since his mortgage has an interest rate of 3.75% and the current interest rate on a debt-consolidation refinance is around 7.50%, he is hesitant to move forward.
Given John’s current mortgage interest rate, is he making the right decision? Let’s take a closer look.

Current Payment

John’s current principal and interest payment on his mortgage is $2,223 per month, and he is paying an additional $703 per month in credit card payments. These two debts combined total to a monthly payment of $2,926 per month.

New Payment

If John went ahead and consolidated his credit debt into a new mortgage with a loan balance of $350,000 and an interest rate of 7.50%, his new principal & interest payment would come out to $2,447 per month.
In contrasting these two scenarios, it’s clear that John would save $479 per month by moving forward with the debt-consolidation refinance. Not only would his monthly payment drop, but he would also be chipping away at the principal balance of the total debt each month, unlike his current scenario where he’s making interest-only payments on his credit card debt.

Benefits of a Debt-Consolidation Refinance

With this information top of mind, refinancing to consolidate debt offers a range of compelling benefits, including:

Streamlined debt management. One of the primary advantages of debt consolidation through refinancing is achieving a much simpler financial life. Instead of dealing with multiple high-interest debts from various sources, you consolidate them into a single, more manageable payment. This consolidation streamlines your finances, reduces the complexity of tracking multiple due dates and payment amounts, and provides you with a clearer picture of your overall finances.

Enhanced monthly cash flow. Consolidating high-interest debts through refinancing can lead to immediate financial relief. It can help provide more breathing room in your budget, making it easier to manage finances effectively and potentially improve your overall financial stability.

Positive impact on credit score. Timely and consistent payments on your consolidated debt can positively impact your credit score over time. As you pay down your debt and maintain good credit habits, your creditworthiness may improve; this can open doors to better financial opportunities in the future, including access to lower interest rates on future debts.

Potential tax benefits. In certain cases, the interest paid on mortgage debt may be tax-deductible, while interest on credit cards or personal loans typically is not. When you consolidate your debt through a mortgage refinance, you may gain access to potential tax deductions, reducing your overall tax liability. Consult with a tax professional for additional details.

Long-term financial strategy. Debt consolidation through refinancing is not just a short-term fix; it can be a crucial component of your long-term financial strategy. By eliminating high-interest debt and creating a structured plan for repayment, you set yourself on a path toward financial stability and security. It enables you to regain control of your finances, reduce financial stress, and work towards achieving your broader financial goals.

Is a Debt-Consolidation Refinance Right for You?

If you have owned a home for a few years, you should not have to worry about drowning in consumer debt payments. Your home equity can be used to lower your monthly obligations, free up some cash flow, and give you financial peace of mind.
Before committing to a debt-consolidation refinance, however, you will want to view thorough Total-Cost analysis. This means understanding the total cost of the refinance (including closing costs) and comparing it to the potential savings to see if it will be worth it. It’s crucial you consider how the new mortgage terms will impact your monthly budget and whether the long-term interest savings outweigh the upfront expenses.
If you believe that consolidating your bills through a mortgage refinance is the right step for you, I'm here to assist you. I will guide you through the refinancing process, helping you identify the best mortgage option and how a debt consolidation can help reduce your monthly obligations. Reach out to me directly or make an appointment to talk! CALENDLY APPT

Rates Are High and Demand Is Low...So Why Aren't Home Prices Falling?

Fri, 03 Nov 2023 19:34:00 GMT

Rates Are High and Demand Is Low...So Why Aren't Home Prices Falling?

By now, everyone knows that demand in the housing market has seen a bit of a slump as homebuyers hold back in hopes of improving affordability.
Home prices are still near all-time highs, and last week the average 30-year fixed mortgage rate hit a 23-year high. But despite this, there are still virtually no homes for sale - which is continuing to push up prices and affect affordability even more. How is this possible? Most would assume that when homebuying costs skyrocket, demand would significantly drop, and more homes would flood the market. Yet here we are, looking at a housing market that has barely any for-sale inventory available.
Let’s dive into what got us here and what it might take to see more homes come to the market.

Why Are There No Homes for Sale Right Now?

The housing market is highly unusual right now, and it has been for a while. In fact, since the pandemic, the process of buying and selling a home really hasn't been 'normal' at all.
The housing market came to a halt in early 2020 as the world stopped, but then took off like a rocket. 30-year fixed mortgage rates spent the entire second half of 2020 under 3% and demand for homes absolutely exploded.
This new demand from those who were waiting for homes to become more affordable collided with an already record-high wave of first-time homebuyers entering the market (the average age of a first-time homebuyer in the United States is 33-years old).

At the same time, current homeowners and investors took advantage of low rates to purchase second homes and investment properties in the hopes of profiting off the growing rental market (Airbnbs and short-term rentals were very popular).
This quickly depleted supply, which was already trending down thanks to a lack of new home building after the 2008 housing crash. When foreclosures and short sales skyrocketed, builders really pulled back on new construction for many years. They've been trying to catch up for the last decade, but it just hasn't been enough to keep up with the growing housing needs of Americans.

Will Low-Rate Mortgage Holders Ever Sell?New Paragraph

A nother unique issue affecting housing supply is a concept known as mortgage rate 'lock-in'. Today’s homeowners have such low mortgage rates that they either won’t sell or they simply can't sell and take on a more expensive housing payment at a higher rate.
And this isn’t just a small number of homeowners. Nearly two-thirds of all mortgages out there today have an interest rate below 4%, and nearly a quarter have a mortgage rate below 3%. Most of these homeowners will not budge and will continue to enjoy their low, fixed-rate mortgage for many years to come.

Housing Supply Is Still Near Historic Lows

Redfin reported that new listings climbed 1.4% month over month in September, the largest increase since February 2022 on a seasonally adjusted basis. That’s a glimmer of relief for homebuyers, who for months have been waiting for more homes to hit the market.
Still, new listings dropped 8.9% on a year-over-year basis in September and remained far below pre-pandemic levels. There were 435,00 new homes for sale at the end of September. At the current pace of sales, there is a 6.9 month's supply. This means that if no more homes came on the market, it would take 6.9 months for every home to be sold.
However, according to census.gov , only 74,000 of those homes are actually completed. 262,000 are under construction, and 105,000 have not even started being built. When look at the pace of sales vs. homes that are completed - that ACTUAL available supply - there is only 1.2 months' supply.

One-Third of Homes for Sale are New Construction

While existing homes, also known as previously owned or used homes, are hard to come by because of mortgage rate lock-ins, newly-built homes are taking over the market. In fact, newly built single-family homes for sale were up 4.5% year-over-year in June, while existing homes for sale were down 18%.
Roughly one-third of homes for sale were new builds, up considerably from prior years and well above the norm that might be closer to 10%. The National Association of Realtors (NAR) predicts that new home sales will increase 12.3% this year, and 13.9% in 2024.
Why are home builders seeing a big increase in market share? It’s mostly due to a lack of competition from existing home sellers. Builders don’t need to worry about finding a replacement property if they sell and seeing their mortgage payment increase like existing homeowners do.
Builders are also able to offer huge incentives such as rate buydowns, including temporary and permanent ones, along with lender credits to help cover closing costs. This allows them to sell at higher prices but makes the monthly payment more manageable for the buyer.

Will More Homes EVER Hit the Market?

This new reality of low housing supply is probably going to persist for the foreseeable future. After all, those with so-called golden handcuffs have 30-year fixed-rate mortgages. They can continue to take advantage of their cheap mortgages for the next few decades. This includes the second homeowners and investors who got in when costs were much lower.
Meanwhile, home builders don’t seem to be taking advantage of the low supply by building a lot. Even if they did, it probably wouldn’t make much difference (existing home sales typically account for around 85-90% of sales).
Many believe that economic turmoil and a recession will bring a lot more homes to the market, but that's very unlikely for a couple reasons:

Homeowners today have massive amounts of home equity. If they lose their jobs, it's very likely they will be able to fall back on their home equity.
Recessions always bring lower mortgage rates, and even if the economy takes a dive, there are still going to be people who remain employed and want to buy a home. Lower rates will bring those people into the market.

Should You Buy Now or Wait?

The answer to this question first and foremost depends on your financial situation. If you are not financially prepared to take on a mortgage payment today, you should wait to jump into homeownership until you can comfortably afford it.
However, if you have met with a mortgage advisor, ran the numbers, and have the room in your budget, you should buy a home now. Housing prices will keep going up like they always have over the long term. The home you want is going to be more expensive a year from now. Buying today means you will be able to lock in your home’s price before housing costs increase even more. If interest rates do go down as predicted, you can refinance to a permanently lower rate.
And remember, because interest rates are high right now, fewer people are buying. This means you won’t have as much competition when you make offers, and it’s likely you will have some negotiating power to secure a lower price or seller credits to reduce your costs even more. We understand that everyone’s situation is different. Before making any decisions on your homebuying plans, it’s crucial that you look at the numbers for your specific purchase scenario and financial situation.
If you would like to know more about your options for purchasing a home today, reach out to me. I can answer all your questions and create a detailed loan comparison so we can create a solution that is best suited to fit your needs.

Why We Believe Mortgage Rates Will Drop in 2024

Tue, 17 Oct 2023 15:48:00 GMT

Why We Believe Mortgage Rates Will Drop in 2024

We understand how incredibly frustrating and disheartening the current mortgage rate environment is.
Everybody had a prediction going into Summer 2023 that mortgage rates would decrease. Unfortunately, the resilient U.S. economy, the Fed’s ongoing war on inflation, and a sharp rise in 10-year Treasury yields have kept rates higher for longer than we all expected.
If you have the goal of buying a home soon, we know the most important question on your mind is: Should I buy a house now, or wait for mortgage rates to go back down?

Will Mortgage Rates Go Back to 3%?

Let’s put some things into perspective first - it is highly unlikely mortgage rates will fall back to 3% anytime soon, if ever.
When mortgage rates hit a record low of 2.65% in January 2021, it was because the Federal Reserve had artificially pushed them down by purchasing trillions in mortgage-backed securities (MBS) and lowering the fed funds rate to nearly zero.
These lower borrowing costs, combined with the massive amounts of stimulus that were pumped into the economy during the pandemic, are what led to massive inflation and mortgage rates nearly tripling from their record lows.
Long story short, we probably won’t see mortgage rates go back to 3%. But that doesn’t mean they need to stay at 7% either...

2024 Mortgage Rate Predictions

At the moment, we are optimistic that 2024 will bring lower mortgage rates and provide some relief for homebuyers. With the economy likely heading into a recession, it’s possible we’ve already seen the peak of this rate cycle.
Of course, interest rates are notoriously volatile and could tick back up on any given week. However, nearly every economic forecast is predicting lower rates in 2024.
The Mortgage Bankers Association's Mortgage Finance Forecast for September 2023 predicts 30-year fixed mortgage rates will be in the 5% range for most of 2024:

Q1: 6.1%
Q2: 5.8%
Q3: 5.5%
Q4: 5.4%

What’s more, they predict that the 30-year fixed will stay low and average 5.1% in 2025.
Fannie Mae also releases a monthly Housing Forecast , and while their September predictions are not as optimistic, they still have 30-year fixed mortgage rates in the 6% range for the entirety of 2024:

Q1: 6.8%
Q2: 6.6%
Q3: 6.4%
Q4: 6.3%

Wells Fargo's latest U.S. Economic Outlook puts 30-year fixed rates pulling back to 6.75% in the fourth quarter 0f 2023, and its forecasting group predicts that rates will fall below 6% in the third quarter of 2024.
Finally, in their August Real Estate Market Outlook , the National Association of Realtors puts 30-year fixed rates at near 6% by early Spring 2024. As it stands right now, the general consensus is for mortgage rates to be in the 5-6% range for 2024.

Should You Buy Now Or Wait?

The answer to this question first and foremost depends on your financial situation. If you are not financially prepared to take on a mortgage payment today, you should wait to jump into homeownership until you can comfortably afford it.
However, if you have met with a mortgage advisor, ran the numbers, and have the room in your budget, you should buy a home now. Housing prices will keep going up like they always have. The home you want is going to be more expensive a year from now. Buying today means you will be able to lock in your home’s price before housing costs increase even more. If interest rates do go down as predicted, you can refinance to a permanently lower rate.
And remember, because interest rates are high right now, fewer people are buying. This means you won’t have as much competition when you make offers, and it's likely you will have some negotiating power to secure a lower price or seller credits to reduce your costs even more.
We understand that everyone’s situation is different. Before making any decisions on your homebuying plans, it’s crucial that you look at the numbers for your specific purchase scenario and financial situation. If you would like to see a Cost of Waiting Analysis for your area, similar to the one shown above, give me a call.

Why Zillow Says Fall 2023 is a Homebuying "Sweet Spot"

Mon, 09 Oct 2023 19:10:00 GMT

Why Zillow Says Fall 2023 is a Homebuying "Sweet Spot"

Most people grow up dreaming of owning a home someday, escaping the cloud of rising rents and building wealth through home equity. However, with the recent surge in home prices, you may be wondering if this is the smartest move today. With home prices so high, is it worth buying a home? Or is it safer to continue renting right now?
In the latest survey from Fannie Mae measuring housing sentiment, 82% of respondents said now is a bad time to purchase a house — a record high. That’s up from 78% in June. Only 18% percent of people think now is a good time to buy a home. However, despite the higher homebuying costs, Zillow thinks it's a good time to buy if you have the budget. And we agree!

How is the Market Different Now?

Zillow's assessment that Fall 2023 is a "sweet spot" for homebuyers is based on the fact that a larger proportion of sellers are relenting on their asking prices.
Zillow's research shows that 9.2% of home listings saw a price cut in the week ending September 16 — the highest share since November. But it's not just about the price. Buying a home at the end of 2023 also means you have more choices than you did over the last few years. There are more motivated sellers and more active listings overall than any time since last December. Usually, home listings decrease as the summer ends. This year, however, August saw a bump in new listings compared to July.
Even though inventory is increasing, home values are still projected to rise. Zillow predicts prices to continue upward through the first half of 2024, saying prices could jump as much as 5% by next August - and that estimate is on the low end compared to the trajectory of appreciation we've seen so far this year.

The Benefits of Buying Right Now

Buying a home today means more room for negotiation on price and more options to choose from, but those are just two of the several ways you benefit by buying a home sooner rather than later.

1. Building Equity

Buying a home means you are investing in your future. When you own a home, your wealth grows in two ways at once:

Principal Reduction

From day one, part of your mortgage payment goes directly toward paying down the balance of your loan. This is essentially paying yourself, as every principal payment increases the equity you have in your home. Yes, buying a home with a mortgage means you also pay interest, but the amount of interest you pay decreases over time and the amount of principal increases. When you rent, 100% of your money is going to pay someone else's mortgage.

Appreciation

While you are paying down your mortgage balance every month, your home value is also increasing. This is FREE money! And when you look at it as a return on your investment, the wealth gains are astronomical. Appreciation is calculated based on the total value of your home, not just the amount of cash you invested in it (i.e., your down payment). Look at it this way: if you bought a $400,000 home today with 3% down - which is the minimum allowed for a conventional loan - you could expect to pay around $18,000 out of pocket between your down payment and closing costs. Zillow says home values could easily increase by 5% over the next year. If that happened, your home would be worth $420,000 - that's an 111% return on your initial cash investment!

2. Stable Monthly Payment

If you finance your home purchase with a fixed-rate mortgage loan, you will know the precise amount of your principal and interest payments for the life of the loan. This long-term predictability fosters financial stability. If you rent, you'll have much more difficulty accurately predicting your monthly rent for years to come. You will be at the whim of your landlord and the rental market every year.
According to ipropertymanagment.com, average rent prices have increased 8.85% per year since 1980. You may be able to rent a home cheaper than you can buy one right now, but in a few years your housing payment will likely be higher than it would be had you locked in a fixed mortgage payment today.
A fixed housing payment provides considerable financial peace of mind. You are also likely to earn more money in the future, which means your principal and interest will dwindle relative to your overall budget.

3. Tax Incentives

The United States tax code heavily benefits property owners. The IRS has extensive rules about the tax breaks available for homeowners, and the ones you choose/are eligible for will depend on a variety of factors. Here are a few of the tax breaks you may be able to take advantage of after your home purchase.

Mortgage Interest. Many homeowners can deduct what they paid in mortgage interest when they file their taxes each year. You can deduct interest paid on up to $750,000 of your mortgage, or $375,000 if you’re married and filing separately.
Mortgage Points. If you bought points on your mortgage, that entitles you to similar tax deductions, because the IRS sees it as mortgage interest.
Property Taxes. The IRS offers tax deductions on income, sales, and property taxes for most homeowners of up to $10,000 total, or $5,000 if married and filing separately.
Residential Energy Credits. If you install alternative energy equipment to make your home more efficient, such as solar panels, you might be able to claim a residential energy credit for it.

4. Lifestyle Stability

Homeownership means you are the boss and can control your lifestyle and family decisions. If your kids are in public school and you don't want to risk having them change schools because your landlord doesn't renew your lease, owning a home would remove much of the risk of having to move.
Do you have pets you don't want to part with? Do you love gardening or redecorating? Need a place to store your boat? As a homeowner, you can more easily enjoy these leisure activities without worrying about logistics or restrictions.

Make Your New Home Even More Affordable with a Rate Buydown!

Buying a home today means you could get a break on price, which is great. But if you want to make your new mortgage payment as affordable as possible, there's a better way to use your negotiating power.
Instead of asking for a price reduction, ask that the seller give you concessions to temporarily lower your mortgage payment for the first few years. You might have heard this strategy be called a "temporary rate buydown" or a "2/1 buydown", and it is hands down the best way to combat higher mortgage rates today.
Using seller credits in this way essentially lowers the interest rate on your mortgage for the first few years, consequently reducing your monthly mortgage payment by hundreds of dollars every month. Often, this strategy ends up costing considerably less for the seller than lowering the price would be, and the home value gets to remain high.
And the best part? If market rates fall before your buydown funds are used up, the remaining funds can be applied to the cost of your refinance. This could mean you end up locking in a permanently lower rate with NO additional charge.
If you would like to see how much more a rate buydown would save you today compared with a price reduction, give me a holler or send me an email and I'll be happy to discuss that with you.

3 Powerful Ways to Combat Home Affordability Challenges in 2023

Fri, 06 Oct 2023 22:00:00 GMT

Are you worried that you can't afford even an entry-level home in your market today? You're not alone. According to a recent survey by Divvy Homes, only 53% of Americans are confident in any way that they’ll be able to own their own home someday. The study shows that the average American thinks it would take them between three and four years to afford a home - and a third believe it would take them five years or more. Another 20% expect that they’ll never be able to afford one. Affordability is the overall problem: 63% of respondents said they often struggle to make ends meet, most commonly because of the high cost of living (69%) and rising inflation (56%). Trust us, we want housing to become more affordable just as much as you do! Unfortunately, economic conditions are keeping homebuying costs higher for longer than we anticipated. Today’s affordability challenges mean following the status quo when home shopping and making an offer just won’t cut it. You need to use every tool at your disposal to help make your new mortgage payment as affordable as possible! This could mean finding creative ways to lower your monthly mortgage payment directly OR restructuring your overall debt picture, so a higher mortgage payment has less of an impact on your finances. Here are the top three strategies we believe are the most effective at improving home affordability in 2023.

1. Use seller concessions for a temporary rate buydown

When high mortgage rates dampen homebuying demand, it becomes more common for sellers to offer concessions to get their homes sold. According to Redfin, 42.9% of buyers received concessions from the seller in the first three months of 2023, which is close to the record high of 45.6%. These numbers are likely even higher now as higher rates have sidelined even more buyers. Seller concessions are most commonly used to help reduce the buyer's out-of-pocket closing costs. However, when the goal is to make a mortgage payment more affordable in a high-rate environment, the best strategy is to use those concessions for a temporary rate buydown. A temporary buydown gives you the option to lower your mortgage payment for one, two, or three years. The time period of the buydown depends on what your mortgage lender will allow and the amount of concessions you are able to get. The cost of the buydown depends on your loan amount and your interest rate (you can read this article to see how buydown costs are calculated). After your loan closes, the funds for the buydown are placed in your escrow account (the same account that holds your prepaid taxes and insurance). Those funds are then used to reduce your mortgage payment every month until the buydown period is over. For example, let's say you qualify for a mortgage at a 7.5% interest rate and are able to negotiate concessions to pay for a 2/1 buydown. For the first year of your mortgage, your monthly payment would be calculated at 5.5% interest instead of 7.5%. In the second year, your payment would be recalculated at 6.5% interest. After two years (the buydown period), your payment will return to 7.5% interest and stay there for the rest of the time you have that loan. A temporary buydown is a great strategy to improve affordability in 2023 because mortgage rates are anticipated to come down. When that happens, you have the opportunity to refinance your mortgage to a permanently lower rate. And if you decide to refinance before the buydown period is over, you can use the remaining funds to reduce the cost of your refinance!

2. Use seller concessions to eliminate private mortgage insurance

If you are buying a home with a conventional mortgage and do not have enough money saved for a 20% down payment, you will have to pay private mortgage insurance (PMI). This is insurance that protects the lender against losses if you are not able to repay your loan. The amount of PMI you pay depends on the size of your down payment, your loan amount, your credit score, and your debt-to-income ratio. The fees typically range between 0.22% and 2.25% of your loan amount per year. In addition to paying for a temporary buydown, seller concessions can also be used to completely remove or "buy out" the PMI on your loan. Depending on how much you are borrowing, this strategy could save you hundreds of dollars every month. Just like a temporary buydown, your lender will tell you what the cost of the PMI buyout would be, and you would negotiate that amount in concessions from the seller. A PMI buyout could save you more than a temporary buydown, or vice versa.

3. Reduce your down payment

This might seem counterintuitive - wouldn't less money down INCREASE your monthly mortgage payment? Aren't we trying to save money here? So many people are focused on getting their mortgage payment as low as possible that they forget to consider their overall financial picture. If your goal is to make a mortgage payment more affordable, you want to zoom out and take a look at your finances as a whole. Here's what the average American currently owes and pays monthly on credit cards, car loans, personal loans, and student loans:

Credit Cards

Average credit card balance: $7,279 (lendingtree.com)
Average credit card interest rate: 22.16% (lendingtree.com)
Average credit card payment: $207 (interest + 1% of balance)

Used Car Loans

Average used car loan balance: $26,420 (lendingtree.com)
Average used car loan interest rate: 11.38% (nerdwallet.com)
Average used car loan payment: $516 (lendingtree.com)

Personal Loans

Average personal loan balance: $8,018 (lendingtree.com)
Average personal loan interest rate: 18.35% (lendingtree.com)
Average personal loan payment: $205 (3-year term)

Student Loans

Average student loan balance: $37,338 (educationdata.org)
Average student loan interest rate: 5.8% (educationdata.org)
Average student loan payment: $503 (educationdata.org)

Obviously, these numbers vary widely and depend on a variety of factors, but they do give us a good idea of just how much Americans are paying every month IN ADDITION to their housing payments. It's no wonder people feel like they can't afford a mortgage today! This is why it's so critical for you and your mortgage advisor to look at your entire financial picture. Your down payment is not just a down payment - it is a tool that should be strategically used to help you purchase a home with the lowest total cost. Often, this means using some of those funds to eliminate other high-interest debt. Let's take a look at an example: You want to buy a $400,000 home today with a 30-year fixed rate loan. With $80,000 down (20%) and a 7.5% interest rate, the estimated monthly payment on your new mortgage would be $2,620*. You also have a car loan and credit card debt. The total balance on these debts is $33,699 with a total monthly payment of $723 (using the average amounts above). What would the impact be if you used some of your down payment to completely eliminate these other debts? If you used $34,000 of your down payment to pay off your car loan and credit cards, you would have $46,000 left for an 11.5% down payment. This would increase your estimated monthly mortgage payment by $238 to $2,858*. Putting less than 20% down would also force you to pay PMI. The estimated PMI percentage in this scenario is 0.46%, which would be $136 every month. This brings your total monthly mortgage payment to $2,994*. So, putting less money down increased your mortgage payment by $374, but you were able to completely eliminate $723 in other monthly debt payments. You are now able to own a home and benefit from appreciation and a fixed housing payment while saving $349 a month!

The Bottom Line

Yes, buying a home in 2023 is more expensive than it has been in the past, but there are options available to combat affordability challenges and make your new mortgage payment less stressful on your wallet. By changing how you use seller concessions and your down payment, considering your overall debt picture, and focusing on total monthly payment rather than just rate, it's very possible you will be able to purchase a home in this market and start reaping the incredible benefits that homeownership brings. With a long-term plan for your home purchase that considers your overall financial picture – not just how low your mortgage rate can be – you can put your money to work for you, purchase your dream home, and set yourself up for financial success. We understand that everyone’s situation is different. Before making any decisions on your homebuying plans, it’s crucial that you look at the numbers for your specific purchase scenario and financial situation. If you would like to see a loan comparison that clearly shows how much you could save on a mortgage payment with these different strategies, give us a call or fill out the form below to request a consultation with a mortgage advisor.
*Estimated monthly mortgage payments reflect hypothetical Principal, Interest, Taxes and Insurance amounts rounded to the nearest dollar amount and do not include other possible fees. These figures are estimated based on a minimum credit score of 740. Figures and rates shown are for educational purposes only and do not reflect an official mortgage loan offer.

Interest Rate buy-down vs Price Reduction

Thu, 21 Sep 2023 16:05:00 GMT

Interest Rate Buydown vs. Price Reduction: Which Option Is Better In 2023?

The housing market has slowed down a bit in the wake of affordability challenges. While there is still plenty of demand for housing and homes keep selling quickly (the median number of days on market has dropped nearly 50% since the beginning of the year), we are starting to see more price drops. According to Redfin, 18.8% of active listings had a price drop in August 2023, up from 16.6% in July.
When interest rates rise, throttling home affordability and shrinking the pool of potential buyers, many home sellers' first move is to lower the listing price to get their home sold. This strategy may bring more buyers to the table, but not only does it reduce the seller's net proceeds, more often than not the amount of the price reduction does not make a significant impact to the buyer's new mortgage payment.
When you actually look at the numbers, asking for seller credits instead of a price reduction and using those funds to temporarily lower the interest rate for the first few years of your mortgage has a MUCH larger impact on improving home affordability and reducing your monthly mortgage payment. And, at the end of the day, it makes no difference to the seller!

Comparing a Seller-Paid Rate Buydown and a Price Reduction

When it comes to keeping your monthly payment and cash to close as low as possible AND maximizing the net proceeds for the seller, using seller credits to reduce your interest rate (and possibly eliminate private mortgage insurance) is drastically more effective.
Interest rate buydowns come in two forms: temporary and permanent. This article will focus on a temporary buydown (also called a 2/1 buydown), as that is the better option in an environment like today where interest rates are elevated but expected to come down. You can learn everything you need to know about the difference between temporary and permanent rate buydowns in this article .
To illustrate the impact a seller-paid rate buydown could have on your mortgage payment, let's compare a few different home purchase strategies that would be realistic today. The strategies below are for the purchase of a $550,000 home with 5% down using a 30-year fixed-rate loan.

Strategy #1: No Buydown or Price Reduction

The first strategy shows what the cost and savings would look like if there was no price reduction applied and no credits from the seller - just strictly purchasing the home at the list price with 5% down.

Purchase Price: $550,000
Interest Rate: 7.375%
Monthly Payment: $4,124
Buyer Monthly Savings: $0
Cost to Seller: $0

Strategy #2: 3% Price Reduction

The second strategy shows what would happen if the seller agreed to a 3% reduction in the purchase price, which in this case would be $16,500. This would save the buyer $123 on their monthly mortgage payment, but the seller's profit from the sale would be reduced by $16,500.

Purchase Price: $533,500
Interest Rate: 7.375%
Monthly Payment: $4,000
Buyer Monthly Savings: $123
Cost to Seller: $16,500

Scenario #3: Seller Credit for 2/1 Rate Buydown

Now we're getting into the winning strategies! This strategy shows a better way for the offer to be structured that will maximize both the savings for the buyer AND the profit for the seller.
For a conventional mortgage with a down payment less than 10%, the home seller can offer up to 3% of the purchase price as a credit to the buyer. This credit can either be used to reduce the buyer's closing costs or, in this case, temporarily reduce the interest rate on their mortgage.
Rather than significantly dropping the purchase price, this scenario shows the seller offering to pay for a 2/1 rate buydown, which would reduce the interest rate on the buyer's mortgage by 2% in the first year and 1% in the second year. This would reduce the buyer's monthly mortgage payment by $682 - over 5 times the amount of savings than would be realized by a 3% price reduction!
Not only does it dramatically increase the savings for the buyer, a rate buydown also increases the profit for the seller compared to the price reduction. The cost of the 2/1 buydown in this purchase scenario would be $12,384, which is less than the 3% maximum allowed. That's an extra $4,116 in the seller's pocket. Talk about a win-win!

Purchase Price: $550,000
Interest Rate: 5.375%
Monthly Payment: $3,441
Buyer Monthly Savings: $682
Cost to Seller: $12,384

Note: You can read this article for more information on how the cost of a temporary buydown is calculated.

Strategy #4: Maximum Seller Concession (2/1 Rate Buydown and PMI Removal)

We know that applying some seller credits to temporarily lower the mortgage rate means a lot of savings for the buyer, but what would happen if the maximum seller credit of 3% was applied?
Not only would this reduce the buyer's interest rate, it would also cover a complete elimination of private mortgage insurance (PMI ) for the entirety of the loan. Monthly mortgage insurance is required on any conventional mortgage with a down payment of less than 20%, but the buyer can "buy it out" with their own funds OR seller credits.
The 2/1 rate buydown combined with the PMI removal would increase the monthly savings for the buyer to $809, a massive difference compared to the $123 savings with the price reduction.
And the cost to the seller? 3% or $16,5000 - the same as the price reduction.

Purchase Price: $550,000
Interest Rate: 5.375%
Monthly Payment: $3,315
Buyer Monthly Savings: $809
Cost to Seller: $16,500

The Bottom Line

As you can see, when it comes to price and concessions negotiations, a seller-paid rate buydown strategy is a much more effective at saving both parties money than a simple price reduction. The buyer enjoys a much lower monthly payment, and the seller gets to maximize their profit by keeping the home at the list price. The neighbors are happy too, because homes selling for top dollar is great for everyone in the neighborhood!
One of the other benefits of a seller-paid rate buydown is that if the opportunity to refinance comes before the buydown funds are used up, the remaining funds can be applied to the cost of the refinance. Quite often, those who choose to utilize a temporary rate buydown are able to refinance in under two years with no additional cost.
If you would like to learn more about the benefits of a seller-paid rate buydown strategy, or if you would like to see a loan comparison similar to the one above for your particular purchase scenario, fill out the form below to request a mortgage discovery consultation with me.
DISCLAIMER All figures and rates shown in the examples above are for educational purposes only and do not reflect an official mortgage loan offer. Hypothetical interest rate includes 1.0 discount point (1% of the loan amount) paid at closing. Hypothetical APR reflects the effective cost of the loan on a yearly basis, taking into account such items as interest, most closing costs, discount points and loan origination fees.
All figures shown in the examples above are subject to change and may be subject to pricing add-ons related to property type, occupancy type, loan amount, loan-to-value ratio, credit score, refinance with cash out and other variables. Estimated cash needed to close may fluctuate based on individual borrowers’ circumstances and are subject to a full Underwriting review of supporting documentation.

Managing & Improving Your Credit Score

Fri, 15 Sep 2023 20:19:00 GMT

Here are the fundamentals to guide you in establishing and maintaining a healthy score:

Recent tallies show a third of U.S. credit scores fall below 649. While not impossible, acquiring a mortgage loan will likely be more difficult and more expensive at this level than with higher scores. Here are the fundamentals of maintaining a healthy score: The somewhat obvious:

Borrow only what you can afford to repay
Make all of your payments on time
Avoid excessive requests or inquiries for credit
Have an emergency account to pay for unexpected expenses
Check your report annually to contest and remove any erroneous information

The not so obvious:

Do not open new store credit cards just to save on a purchase. New accounts can lower your score, and too many payments can be difficult to manage. Saving 10% on a $300 lawn mower means little if it costs you even just fractionally more on a $300,000 home loan.
Do not open new accounts just to transfer balances for an introductory rate. In addition to possibly lowering your score, these offers often have traps. Instead, use them to leverage a lower rate from your existing card company.
Do not close old accounts. If you have a good record of payments on old accounts, these will benefit your score. Using them occasionally and conservatively will keep them active and contribute toward a good score.
Do not be afraid to use credit. Without the use of credit, you will have no score, and that can be just as bad as a low one.
Keep a high credit line and a low balance. Credit utilization ratios measure this relationship, and lower is better.
Maintain a variety of account types. A combination of revolving, installment and secured financing along with excellent records of payment will yield a higher score. Still, don’t run out and open an account just to have diversity, as this is the least influential factor.

If you’re not sure where you stand on your credit score, you can obtain your credit report for free every 12 months from each reporting company (TransUnion, Equifax, Experian) by clicking here.
I'm always available for questions regarding your credit score and how it relates to obtaining a mortgage or refinance. Feel free to contact me if you have any questions.

Debunking the 3 Most Common Myths About the 2023 Housing Market

Mon, 21 Aug 2023 16:42:00 GMT

Debunking the 3 Most Common Myths About the 2023 Housing Market

Constantly changing headlines and predictions make the 2023 housing market extremely challenging to navigate. Unfortunately, the number of misconceptions about buying, selling and owning a home has never been higher. According to a recent survey by Fannie Mae, 82% of people believe it’s a bad time to buy a home. We’ve always known there is a lot of fear and uncertainty around the housing market, but I was reminded of this in a big way recently after one of my teammates posted a video on Instagram talking about how home prices will be affected when interest rates come down.
Comments flooded in, most of which were quite negative about future housing demand and the stability of home prices in the face of a looming recession. Most of the comments argued these three points:

Mortgage rates are not going to come down.
Even if mortgage rates do come down, nobody is going to buy homes because prices are too high.
Home prices are falling and will continue to fall.

I understand the headlines can sometimes be alarming: “Home sales activity at a decade low.” “Prices are collapsing.” “The market is set to crash.” The attention-grabbing narratives can be confusing to those who are reading that the market is in trouble, yet finding very competitive conditions and price increases when they look at homes. With so many competing voices vying for your attention – who do you trust?
As a mortgage advisor, the biggest part of my job today is dispelling myths like those listed above. In this article, I’ll break down the FACTS and DATA about what’s currently going on with supply and demand, what has happened in the past with home prices and interest rates, and what I, and other experts, believe will happen in the future.
Myth #1: Interest rates are not going to come down.
Let’s look at the history of the Federal Reserve’s economic policy, recessions, and their impact on mortgage rates.

In the early 1980s, tight monetary policy in the United States to control inflation led to a recession. The Fed Funds rate was increased from 11% to 20% to combat the hyperinflation that carried over from the 70s because of the 1973 oil crisis and the 1979 energy crisis. In the two years leading up to this recession, fixed mortgage rates reached their highest point in modern history at an annual average of 18.6%. However, once inflation calmed down and the recession started, rates fell to 12%.
In 1994, the Federal Reserve began a tightening program to proactively prevent inflation that they saw on the horizon. This cycle saw interest rates rise by nearly 3% in a little over 12 months, and mortgage rates jump 1.5%. Inflation fell as a result and a recession was actually avoided. The market response saw mortgage rates drop even lower than they had been previously down to 5.5%.
This brings us to the current monetary tightening cycle. In the last 3 years, we’ve seen inflation jump from 1.75% to 9.1%. Consequently, mortgage rates skyrocketed from a low of 2.5% to a high of over 7%.
The Federal Reserve has hiked the Fed Funds rate at the fastest pace in history, up to 5.33% currently. This aggressive monetary policy will eventually bring inflation down and push the economy into a recession, which will bode well for mortgage rates.
We know this will be good news for rates by looking at how they have responded during previous recessions. As you can see in the graph below, mortgage rates have decreased either during or immediately following each of the last six U.S. recessions.

Myth #2: Lower mortgage rates will not bring more buyers into the market.

A lot of people think that, even if mortgage rates do come down, nobody is going to buy homes because prices are too high. Prices of course have an effect on home affordability, but so do interest rates. Rates will come down eventually, and even a small decrease will impact affordability in a meaningful way. For every 0.5% improvement in interest rate, the payment on a median priced home (currently $416,1000) decreases roughly $110.
According to realtor.com , when mortgage rates push 7%, 20 million households are priced out of the market compared to when rates are at 3%. Essentially, this means that for every 1% drop in mortgage rates, 5 million more borrowers are able to afford a mortgage on a median priced home.
In order to have that same impact on affordability, the value of the median priced home would have to decrease by almost 11%. And there is just no concrete evidence that this is going to happen (more on that below). Lower prices could also have an opposite effect when it comes to buyer demand. Currently, there are a lot of homeowners who want to move but do not want to give up their low interest rate. If home prices come down before interest rates do, these homeowners will be even more entrenched in their homes because they will not want to sell at a lower price.
Myth #3: Home prices are falling and will continue to fall.
Those who think home prices are falling simply are not paying attention. Home prices reversed course in February and have stayed that way. All of the reputable home price indexes confirm that in many areas of the country, price cooldowns were just mild corrections. Not only that, but many of the new numbers have eclipsed the ones we saw at the peak of the market in June of 2022.

According to Black Knight’s August 2023 Mortgage Monitor report, prices have now reached new peaks in 30 of the 50 largest markets, with several northeastern metros currently 5-8% above their 2022 highs. Goldman Sachs housing analysts also recently changed their tune on the market and no longer think home prices will fall this year. Instead, they are forecasting a slight increase.
We are revising our home price forecasts higher, to 1.8% for full-year 2023 vs. -2.2% prior, and 3.5% in 2024 vs. 2.8% prior,” Vinay Viswanathan, a fixed income strategist at Goldman Sachs, wrote in a note for the firm’s housing team. “These forecasts imply home prices will remain roughly unchanged through [the] year-end and then return to trend growth levels in 2024.
The reason home prices will continue to rise is because there are still not enough homes on the market. According to Black Knight’s report, inventory has declined in 95% of the major U.S. housing markets since the start of 2023.
Realtor.com’s July housing data draws the same conclusion. While we are still seeing a small amount of month-over-month growth in active listings (a spike happens every year around this time), the growth rate is declining as sellers continue to list fewer homes than last year and buyers compete over the remaining affordable homes for sale.
As you can see below, while inventory has increased since last year, it is still drastically lower than at the start of the pandemic.

The Bottom Line

Home prices are determined by two things: supply and demand. Yes, there are few buyers in an inflation-heavy economy with high interest rates, but in order for home prices to go down there needs to be fewer buyers than sellers – and that is just not within the realm of possibility today. There is a lot of pent-up demand in the housing market right now that has been kept at bay because of the affordability problem. But as affordability improves, we are going to continue to see more people move forward with their homebuying plans.

5 Ways Trying to "Time" the Housing Market Could Cost You

Mon, 14 Aug 2023 14:18:00 GMT

5 Ways Trying to "Time" the Housing Market Could Cost You

It's a hard pill to swallow - buying a home today is a lot more expensive than it was a few years ago.
If you're a renter who's ready to own a home, or a homeowner who’s decided your current house no longer fits your needs, the desire to wait for home prices and interest rates to drop significantly is strong. It MUST happen, right? It happened in 2007 and 2020, so it has to happen again!
In a perfect world, mortgage rates and home prices would both fall at the same time. This has happened in the past, but the occurrences are VERY rare. Home prices dropped severely from 2007-2009 during the subprime mortgage crisis and the runup to the Great Recession, but that's the only time in the history of housing market data that prices fell substantially. The next largest drop happened just recently in the last half of 2022 as interest rates skyrocketed. However, that drop was minimal compared to the housing crash, and it happened after two years of the fastest pace of home appreciation in history.
Other than these two periods of time, home prices have consistently gone up. Sure, there are always small variations in home values due to both macroeconomic factors (the economy and interest rates) and microeconomic factors (what's happening in a specific neighborhood or city), but these are very minimal and have little to no impact on your wallet when buying a home.
Interest rates, on the other hand, are solely influenced by investor demand in the bond market, which moves in response to macroeconomic factors like inflation, economic growth, and monetary policy. Check out the chart below with data from the Federal Reserve Bank of St. Louis showing average 30-year fixed mortgage rates (blue line) and average sales price of homes sold (yellow line) since 1971.

Home prices consistently go up, and interest rates are much more volatile. Other than the lead up to the Great Recession, there have only been very short-lived periods when interest rates and home prices have fallen in tandem.
All this is to say that market timing is great in theory, but while you’re waiting for both prices and rates to drop, the market is moving without you.

The 5 Biggest Costs of Trying to Time the Housing Market

It’s easy to think putting off a big financial decision like a home purchase is a smart move—and it can be. Not everyone should buy a home now. If you need to work on your credit , save for a down payment , or establish an emergency fund, then you should wait to start the homebuying process. However, if all your ducks are in a row and you’re just drumming your fingers waiting to get the "best deal" on a home and mortgage, then it's important to understand the true costs of waiting.

1. The home you want will be more expensive.

Prices might seem relatively high now, but it’s important to remember that homes historically retain and increase their value over time. While prices do fluctuate in certain markets, because of the supply and demand imbalance, there will not be any significant and sustained home price declines.

2. Your rent will be higher.

According to ipropertymangement.com , average rent prices have increased 8.85% per year since 1980. While the cost of buying a home remains high, more people are going to remain in the rental market which will keep rent prices elevated. Rent prices are also affected by inflation, whereas as a mortgage payment is not.

3. You will miss out on home equity.

Homeownership helps you build wealth by providing you with equity in your home—the portion of your home that you actually own outright. As you make mortgage payments and your loan balance decreases, your equity will increase. If you wait until the right time to buy and continue renting, you are paying money every month that you will never see again.

4. You could lose the ability to negotiate.

Arguably the biggest benefit of buying a home in a "buyer's market" (when demand for homes is lower than supply) is your ability to negotiate on the terms of your home purchase. These negotiations can impact the price of the home and the amount of seller credits or concessions you receive. Pulling either of these levers can save you a substantial amount of money on your purchase.
When competition for homes is low, you have more opportunity to negotiate with sellers on price reductions and credits for closing costs or interest rate buydowns. Once that “perfect” time to buy a home comes around, there are going to be a lot more offers on the home you want. That means the seller dictates the terms, not you.

5. Interest rates could increase even more.

The short-lived era of 3% interest rates for 30-year fixed mortgages is over, and unlikely to return anytime soon — perhaps for decades. That’s because average 30-year fixed mortgage rates of 3% or less were an anomaly related to the pandemic, lasting from about July 2020 to November 2022. Historically, mortgage rates have been closer to an average of 7% over the past 50 years, according to Freddie Mac data .
Is it impossible to predict exactly what will happen with interest rates. While we can get a good idea based upon inflation numbers and what the Federal Reserve is going to do with their monetary policy, there are many other factors at play that affect mortgage rates like inflation and the state of the economy.

The Bottom Line

Whether you're a first home buyer or a seasoned investor, timing the housing market is extremely difficult. There will always be pros and cons when buying a home in ANY market.
If you are in the market for a home and you are able to afford it, now is the time to start the homebuying process. Remember, wealth is not created by timing the market – it’s created by time IN the market. The sooner you buy a home, the sooner you will start building equity and be one step closer to financial freedom.

How to Beat High Rates with a 2-1 Buydown

Mon, 31 Jul 2023 17:25:00 GMT

How to Beat High Rates with a 2-1 Buydown

In an environment where mortgage interest rates are high, rate buydown strategies can be very helpful for homebuyers who are worried about being able to afford a new mortgage payment. One of the most widely used rate buydown strategies today is called a 2-1 buydown.
Here’s everything you need to know about using a 2-1 buydown strategy to lower your interest rate and make your monthly mortgage payment more manageable.

What is a 2-1 Buydown?

A 2-1 buydown is when a home buyer uses credits (also called concessions) from a home seller or builder to temporarily lower the interest rate for the first two years of their mortgage, consequently lowering their monthly mortgage payment. The ‘2-1’ signifies that the interest rate will be lowered by 2% for the first year of the mortgage and 1% for the second year.
For example, let's say you are buying a home with a 30-year fixed rate mortgage at a 6.5% interest rate. If you chose to use a 2-1 buydown, you would subtract 2% from that interest rate for the first year of your mortgage. Your mortgage payment for that first year would be calculated at a 4.5% interest rate, which would lower your mortgage payment by hundreds of dollars every month.
After that first year, your mortgage payment would be recalculated at a 5.5% interest rate. Once those first two years are up, your mortgage payment would return to the original calculation at 6.5% and remain there for the rest of your loan term (years 3-30).

How Much Does a 2-1 Buydown Cost?

Determining the cost of a 2-1 buydown is very straightforward: it's simply the total amount of money you will be saving during the years the buydown is in effect.
For example, let's say you want to purchase a $500,000 home with a 5% down payment ($25,000). You apply for the loan and are approved for a 30-year fixed rate mortgage at 6.5%.
To find out how much a 2-1 buydown would cost in this scenario, you need to find out how much your mortgage payment would be at three different interest rates: 4.5%, 5.5%, and 6.5%. Once you have the numbers, you just add up the total difference between each of those monthly payments over the first two years. Here's an example of what that could look like for the above scenario:

The total savings realized by a reduced interest rate for the first two years of this loan would be $10,800, so this is how much the 2-1 buydown would cost. Important note: You can use a mortgage calculator to estimate your monthly payments, but the only way you will know the exact figures is by obtaining a pre-approval from your mortgage advisor.

What is the Process of Getting a 2-1 Buydown?

Once you know how much the 2-1 buydown will cost for your purchase, you will then ask for that amount as a credit from the home seller or builder. Depending on what loan program the buyer qualifies for, a seller can offer a certain amount in credits or concessions. This is common in a 'buyer's market' when there are a lot of homes on the market and sellers have to make their properties more attractive by offering some incentives. It can be a bit more difficult to negotiate these credits in a 'seller's market' when there are multiple offers on the home, but it is still possible if the owner is highly motivated to sell.
If the seller agrees to pay for the 2-1 buydown, the amount will be subtracted from their proceeds from the sale of the home at closing. That amount will then go into your escrow account, and a portion of it will go toward lowering your mortgage payment for two years until all the funds are used up.

What Happens When the 2-1 Buydown Period is Over?

After year 2, your interest rate adjusts back to its normal “note” rate. Your rate does not adjust according to market rates at that time; even if rates are higher, you would only pay the rate you initially qualified for.
However, if something happens that causes rates to decrease (like a recession , which we believe will happen sometime next year), you may be able to refinance and get a permanently low rate for the rest of your loan.

What Are the Benefits of a 2-1 Buydown?

A 2-1 buydown strategy reduces your interest rate and your monthly payment for the first few years of your mortgage, making the home more affordable. A lower monthly payment can also make the transition from renting to owning a bit easier and allow you to start building equity and investing in your future much sooner.
What many home buyers do not realize is that a 2-1 buydown is much more effective at lowering your monthly mortgage payment than a price reduction would be. This can be a great negotiating tool. Instead of asking for a larger amount off the purchase price, you can ask for a smaller amount as a credit to be used as a buydown. It makes no difference to the seller, and it can give you an advantage over other offers that are pushing for a heavily reduced price.

How to Know if a 2-1 Buydown is Right for You

In an environment where mortgage rates are rising, a 2-1 buydown can help you afford a larger mortgage payment and a more expensive home. This strategy can be especially helpful to first-time homebuyers who may be having trouble purchasing a home in the current market.
Understanding your different options will help you determine the right loan product for you. Whether a 2-1 buydown makes sense for you will depend on a variety of factors such as your current financial situation, the market you are buying a home in, and your financial and homeownership goals.
If you would like to learn more about the benefits of a 2-1 buydown strategy, or if you would like to see a loan comparison showing all the options available to you, fill out the form below to request a mortgage discovery consultation with one of our experienced mortgage advisors.

Don't Let Short-Term Homebuying Fears Keep You From Long-Term Wealth

Mon, 03 Jul 2023 14:32:00 GMT

Don't Let Short-Term Homebuying Fears Keep You From Long-Term Wealth

Today’s higher mortgage rates , inflationary pressures , and concerns about a potential recession have some people questioning: should I still buy a home this year? While it’s true this year has unique challenges for homebuyers, it’s important to think about the long-term benefits of homeownership when making your decision.
Consider this: if you know people who bought a home 5, 10, or even 30 years ago, you’re probably going to have a hard time finding someone who regrets their decision. Why is that? The reason is tied to how home values grow with time and how, by extension, that grows your own wealth. That may be why, in a recent Fannie Mae survey , 70% of respondents say they believe buying a home is a safe investment . Here’s a look at how just the home price appreciation piece can really add up over the years.

Home Price Growth over Time

The map below uses data from the Federal Housing Finance Agency (FHFA) to show just how noteworthy price gains have been over the last five years. And, since home prices vary by area, the map is broken out regionally to help convey larger market trends.

If you look at the percent change in home prices, you can see home prices grew on average by just over 56% nationwide over a five-year period.
Some regions are slightly above or below that average, but overall, home prices gained solid ground in a short time. And if you expand that time frame even more, the benefit of homeownership and the drastic gains homeowners made over the years become even clearer:

The second map shows, nationwide, home prices appreciated by an average of over 290% over a roughly 30-year span. This nationwide average tells you the typical homeowner who bought a house 30 years ago saw their home almost triple in value over that time. That’s a key factor in why so many homeowners who bought their homes years ago are still happy with their decision.
And while you may have heard talk in late 2022 that home prices would crash, it didn’t happen. Even though home prices have moderated from the record peak we saw during the ‘unicorn’ years, prices are already rebounding in many areas today. That means, in most markets, your home should grow in value over the next year.
The alternative to buying a home is renting , and rental prices have been climbing for decades. So why rent and deal with annual lease hikes for no long-term financial benefit? Instead, consider buying a home.
Source: Keeping Current Matters

Home Prices Are Still Rising

Last week, Case-Shiller and FHFA released their home price index numbers for April, and they show another monthly increase in home prices. When looked at alongside the other April reports and comparing to the previous months, it’s clear that housing is still doing well despite high interest rates suppressing the demand for homes.

When you look at all of these metrics together, you can clearly see the acceleration of home price gains that has already happened this year. All month-over-month home price reports have been positive since February, and we are optimistic about good numbers ahead.
If we annualize the Case-Shiller and FHFA numbers – meaning if these trends continue at the same rate throughout the year – we would see annual appreciation of 3% (Case-Shiller) and 7% (FHFA). This pace could accelerate even more if interest rates fall toward the end of the year.

The Bottom Line

If you’re questioning if it still makes sense to buy a home today, remember the incredible long-term benefits of homeownership.
If you would like to know more about your options for purchasing a home, fill out the form below to schedule a consultation with one of our mortgage advisors. They will answer all of your questions and create a detailed loan comparison so you can create a solution that is best suited to fit your needs.

Have a Lot of Equity, But Feel Stuck In Your Low Rate? You Need an Equity Transition Plan

Mon, 05 Jun 2023 18:31:00 GMT

Have a Lot of Equity, But Feel Stuck In Your Low Rate? You Need an Equity Transition Plan

Do you want to use your home equity to move to a better home, but feel like you’re stuck because you have a low interest rate on your current mortgage?
This is a story we hear all the time. According to Goldman Sachs, 99% of mortgage borrowers have a rate lower than the current market rate, with 70% of those having a rate below 4%!
But guess what else we hear about all the time? Homebuying regrets.
There are a lot of homeowners out there who bought during the market boom of the last few years and are just not happy with their home purchase. Here are some of the top regrets these homeowners have according to data from the Anytime Estimate American Home Buyer Survey :

Compromising priorities to get a lower rate – or to just get into ANY home in the wild market of the last few years – has led to regret among nearly three-fourths of home buyers, according to the survey.
But while these homeowners may be unhappy with their home, most of them are likely very happy with the equity they have accumulated.
According to CoreLogic’s latest home equity report , U.S. homeowners with mortgages saw their equity increase by a total of $1 trillion in 2022 alone – even with the market slowdown that happened at the end of the year.
And according to Black Knight’s February Mortgage Monitor Report, the average mortgage holder has $178K in tappable equity to borrow against while retaining a healthy 20% equity stake in the home.
Unfortunately, most homeowners are so focused on keeping their current mortgage rate that they neglect to analyze their overall debt picture. The amount of consumer debt out there is at an all-time high, and the cost of carrying that debt (aka interest payments) has increased dramatically:

Average credit card rate: 24% ( lendingtree.com )
Average personal loan rate: 11% ( bankrate.com )
Average use car loan rate: 9% ( marketwatch.com )
Average HELOC rate: 8% ( bankrate.com )

If you’re like most homeowners, you probably have monthly payments on debts like these that are draining your bank account and slowing down the progress on your financial goals. But what if sacrificing your low mortgage rate meant that you could not only eliminate all those debt payments and save money every month, but also move into a new home and put those homebuying regrets behind you?
It’s not just a pipe dream. We’ve seen it happen with the homeowners we work with time and time again. All it takes is to zoom out and look at your overall debt picture, rather than just focusing on how much your mortgage payment will increase with a higher interest rate.
Let’s take a look at how this works using a real-world example of a homeowner we recently worked with. By shifting the way they thought about their home equity and overall debt picture, we were able to help them create a plan to 1.) buy a more expensive home that better fit their lifestyle, 2.) eliminate all of their non-mortgage debt, and 3.) reduce their monthly expenses – all while increasing their interest rate by over 3.5%.

Case Study: Building an Equity Transition Plan

Every year, our mortgage advisors conduct an annual financial review with homeowners they have helped in the past. We do this to help you keep up-to-date on the market and the wealth in your home, and to make sure you are always in a mortgage with the lowest possible cost and potential to help you reach your financial goals.
During one particular meeting, a client told us they were unhappy with their home and wanted to move but could not justify giving up their 3.25% interest rate. Even though they had over $150,000 of equity in their home, they were convinced it would be impossible to afford the home they wanted at the current prices and interest rates.
This was understandable because while they had accumulated a lot of equity in their home, they had also accumulated a lot of other consumer debt over the years. Their monthly mortgage payment was $1,848, but they were also paying $1,800 every month on credit cards and two car loans – bringing their total debt payment to $3,649.
The problem? They were so focused on their mortgage payment that they were not considering their overall debt profile.
They thought, like many homeowners do, that the most effective and cost-friendly strategy for purchasing a new home is to use ALL of the equity you have in your current home as a down payment – because a higher down payment means a lower principal balance and consequently a lower mortgage payment.
They did not realize that by putting forth a smaller down payment on the new home and using some of their equity to pay off their other debts, they could buy a $150,000 more expensive home – with a 3.5% higher interest rate – and their mortgage payment would only increase by a couple hundred dollars. The image below is taken directly from the Total Cost Analysis their mortgage advisor prepared for them comparing their current mortgage and monthly payment to three other scenarios.

Scenario #1: $600K Purchase, 25% Down, No Debt Payoff

The first scenario details what their payment would look like if they used all of their home equity as a down payment on a new home. The home they wanted was listed for $600,000 and the new rate they qualified for was 6.875%. Even by using all of their current equity as a 25% down payment, buying the new home would increase their monthly payment by $1,557 (the amount shown in the PAYMENT line includes both their mortgage payment and their other debt payments).

Scenario #2: $600K Purchase, 10% Down, Payoff All Other Debt

The second scenario uses some of their equity to pay off all their consumer debt.
They owed a total of $90,000 on car loans and credit cards. Using their equity to pay off those debts meant they could only put 10% down on the new home and would have to pay mortgage insurance for a few years, but their monthly payment would go up by only $438 compared to the $1,557 increase had they gone with scenario #1.
While an extra $438 a month is still a substantial increase, this strategy would allow them to pay off ALL their other debt, purchase their dream home, and own a higher value asset that will continue appreciating.

Scenario #3: Potential Future Refinance

Scenarios 1 and 2 show what the immediate impact on their monthly payment would be – but what about in the future when mortgage rates drop? Scenario #3 shows what could happen if they implement scenario #2 now, and then refinance when rates drop to an anticipated 5%. If they did not take on any other debt, doing this would decrease their monthly payment to $3,438 – over $200 less than the current payment on their 3.25% mortgage!

The Bottom Line

By changing how they use their home equity, considering their overall debt picture, and focusing on total monthly payment rather than just rate, this homeowner was able to find an affordable way to purchase their dream home – even while increasing their interest rate by over 3.5%. What sounds like the better financial strategy to you: keeping a low mortgage rate for as long as possible, or paying off all your other debt AND living in a home you love?
With a long-term plan for your home equity that considers your overall financial picture – not just how low your mortgage rate can be – you can put your money to work for you, purchase your dream home, and set yourself up for financial success.
If you would like to see a Total Cost Analysis like the images above that compares your current mortgage with other strategies, fill out the form below to request a consultation with one of our mortgage advisors.

Real Estate: The Most Effective Path to an Early and Wealthy Retirement

Mon, 03 Apr 2023 21:35:00 GMT

Real Estate: The Most Effective Path to an Early and Wealthy Retirement

How confident are you that you’ll be able to retire comfortably?
There’s a lot of discourse out there about whether the United States is heading for a retirement crisis. This conversation has been kicked to the forefront again in recent weeks with the news of France announcing reforms of their pension system that will push the retirement age from 62 to 64.
Unfortunately, Americans just do not have enough saved for retirement. A recent report by PWC analyzing US Federal Reserve data shows that one in four Americans (including 27% who consider themselves retired) have absolutely NOTHING saved.
Anyone who has not been able to save much for retirement will depend solely on Social Security – and that typically replaces only about 40% of pre-retirement income . However, it’s highly likely that we will see major reforms in social security. The Congressional Budget Office estimates that social security reserves will be depleted by 2033.
With inflation rising, the stock market growing increasingly volatile, and social security drying up, you need to take matters into your own hands when it comes to your financial future! And the best way to do that is through real estate – specifically, building a portfolio of rental properties.

Building a Safe and Early Retirement with Real Estate Investing

Real estate investing for retirement comes with a plethora of upsides. Whether you are hoping to retire young or catch up on your retirement savings later in life, capitalizing on these unique benefits of real estate investing will allow you to build your retirement income quickly and safely.

Rental Income and Rising Equity

Real estate appreciates over time at a greater rate than inflation. Combined with the rental income over the years, the actual rate of return can be staggering.
If you’re worried about home prices falling, take a look at the chart below. Real estate values have gone up 73 out of the last 80 years – that’s a pretty good indicator of future performance.

If you invested in just one rental property today, you would immediately see your wealth grow from two directions at once. Your property value would appreciate over the years, and at the same time your tenant would be paying down your mortgage for you – your debt would be shrinking as your property value rises!
Rents also rise alongside inflation, and in many cases rise faster. That’s because rents are a primary driver of inflation.
Your property rents for $2,500 the year you buy it. The next year, you raise the rent by a conservative 3%. And then you do the same next year, and the year after that. Your real returns stay the same, or even improve over time.
Eventually, your tenant would pay off your mortgage entirely, leaving you with a free and clear asset and even greater cash flow for retirement income.

The Power of Leverage and Rental Income

Imagine you have $250,000 cash that you would like to invest in real estate. You could buy a small rental property and earn a modest return on your investment through rental income, but it likely would not be much more than you would see if you invested in other assets over the long term.
Using the common 1% rule (monthly rental income should be 1% of the purchase price), you would charge $2,500 rent for the $250,000 property. The 1% rule is also commonly applied to maintenance and operating costs, meaning it would cost you 1% of the property value to maintain the property each year. For this example, that would be $208 per month. Subtract that from the rent and you have a monthly cash flow of $2,292.
Now let’s break this down by looking at cash-on-cash returns (the annual cash income earned on the cash you invested).
By purchasing just the one rental property with cash, your annual rental income would be $27,504. This means your cash-on-cash return would be 11% ($27,504 annual rent / $250,000 investment = 11%). Not a bad return on investment at all.
But the real returns come with leverage. Instead of buying just one property for cash, you could use the power of leverage and buy five properties for $250,000 each, financing 80% of the purchase price and putting down the other 20% with your cash. Beyond helping you scale five times as fast, this strategy would also dramatically improve your cash returns.
Say that for each of those $250,000 properties, you borrow $200,000 for a 30-year mortgage at a fixed rate of 6.5%. Your monthly mortgage payment for each property would be approximately $1,500 with principal, interest, taxes, and insurance. This means your monthly cash flow would be $792 per property, or $3,960 total.
That increases your annual cash-on-cash return from 11% to 19%!
And those returns actually improve even more over time. That mortgage payment stays fixed as the years and decades pass, even as rents rise to keep up with inflation. That means that the spread between your mortgage payment and your rent actually grows much faster than the rise in rent alone. If you raised the rent on one of the properties above by a modest 3%, it would be a $75 total increase. But a $75 increase in the spread between your mortgage payment and your rent ($1,000 in our scenario) would mean a 7.5% increase in your margin.
And that’s just in the first year alone! Over time, your rent increases would build upon each other even as your mortgage payment stays fixed.

The Power of Leverage and Appreciation

Using leverage to purchase multiple properties can dramatically increase the cash return on your investment and provide you with a consistent income, but it gets even better – the returns we’ve already discussed don’t even take into account the wealth you would be building through appreciation alone.

In 2022, home prices appreciated an average of 6% nationally. If you had purchased just one $250,000 home with cash last year, your return on that investment would have been 6% over 12 months. But appreciation is not realized just on the amount you invested…it’s realized on the entire value of the home (you can probably see where this is going). If you owned five properties each worth $250,000 last year, with 80% leverage your return on investment would jump to a staggering 30% in just one year!
Add this “leveraged appreciation” to the return you would be getting on rental income, and you have a rapid increase in your net worth that is unmatched by any other investment out there.

The Bottom Line

While purchasing and owning rental properties does require more knowledge and more labor than stocks, the returns are unmatched. It’s that same barrier of entry that keeps everyone from investing in them, which keeps the returns strong.
Investing in real estate is a great step towards achieving financial freedom, and it is one of the most effective ways to build a safe and early retirement. Take advantage of the perks above to scale your passive income and grow your net worth faster, so you can escape the rat race and be confident you will have a comfortable nest egg in your later years.
Take the time to learn how to find good deals and how to calculate rental cash flow. Once you know how to do that, you can create ongoing sources of passive cash flow that only rise in value and income with every year that goes by.

Renting vs. Buying: What Are the Pros and Cons?

Mon, 14 Jun 2021 14:17:00 GMT

Renting vs. Buying: What Are the Pros and Cons?

The lease to your apartment is coming to an end and you find yourself faced with the choice of signing another year long lease, or apartment hunting again. But have you thought about starting your journey to owning your dream home? Owning a home can be a big decision to make, but it can also be a worthwhile one.

Big decisions should be made on an informed basis and, of course, Luminate is here to help!

Benefits of Renting

Before we jump straight into the benefits to owning a home, let’s take a look at why some choose to rent.

1. Flexibility

Signing a lease for a year requires minimal commitment and allows for more room to relocate if needed.

2. Maintenance

This is one of the biggest draws to renting. If something breaks or goes wrong in your apartment, the landlord pays to fix it, not you!

3. City Living

Home ownership and city living don’t tend to work together well unless you are buying a condo (which can be pretty pricey). So, many people who want to live in the city tend to rent instead of buy!

4. Amenities

Many apartment complexes offer amenities like shared spaces, pools, gyms, etc.

5. Lower Utility Costs

Most apartment complexes only require you to pay for your gas, electric, and internet; whereas owning a home comes with many more utility expenses.

Benefits of Buying a Home

Now let’s take a look at the many benefits that come along with buying a home versus renting. Here are just a few:

The decision between renting or buying can be a hard one to make. But our team at Luminate is here to support you on your journey to owning your dream home. So whenever you’re ready to buy, we are ready to help!

Get in touch with us!

7 Tips on How to Raise Your Credit Score

Thu, 13 May 2021 13:52:00 GMT

7 Tips on How to Raise Your Credit Score

Mortgage lenders look at FICO credit scores as a sign of your ability to handle and repay debts. The better your score, the better mortgage terms they will be able to give you. But what if your credit score is less than desirable? You can take steps to raise your number, which can save you thousands on mortgage interest over the long term.

Changing your credit score will take time. Be ready to work on it over the months, possibly a year or longer. If you're planning to buy a home and you know your credit score is less than ideal, start working on it as soon as you can. The earlier you start, the higher your score will be when you're ready to purchase. Try these strategies to start lifting your score.

#1 - Get Current With Past-due Bills

Your payment history is the most significant ranking factors in your credit score. If you have any outstanding bills, bring them to current first. Any late payments remain on your credit report for up to seven years. Getting current can boost your score and stop the cycle of late payments being added, which saves you money.

#2 - Pay on Time

On-time payments play a critical role in your credit score. Any late payments you make–rent, utilities, credit card– are reported to the credit bureaus. Try to at least make the minimum payment on your credit card balance every month. Set up reminders or auto-pay for any other bills you have, including utilities and rent.

#3 - Pay Down Revolving Balances

Another factor in your credit score is your credit utilization rate, which is how much of your credit you are actually using.

Let's say you have $20,000 in available credit, and you are carrying a $10,000 balance. You are utilizing 50% of your available credit, which is high. Having a high balance on your revolving credit card accounts hurts your score. You want to maintain a low balance relative to the credit limit. Aim to have your utilization ratio in the single digits.

#4 - Try to Pay Balance Off Each Month

In addition to paying off your bills on time, try to pay off your balance every month. This goes back to credit utilization. After your payment history, it's the second most important factor in your FICO score. If you pay your credit card balances every month, you can keep your credit utilization score low and your FICO score up.

#5 - Establish a Credit History

You can't start showing your trustworthiness as a borrower until you have a track record. You need to have some open and active credit accounts in your name. The credit bureaus factor in how long you have been a borrower, so the longer you have an open and active credit card, the more it can boost your score.

If you're unable to get a credit card, you could get added as an authorized user on someone else's credit card, as long as they use the card responsibly. Another option is to get a credit builder loan or a secured card, which can start building your credit history.

The credit bureaus also have a few options to help improve your credit score and show your trustworthiness to borrowers.

#6 - Limit New Credit Applications

There is a sweet spot between having too many credit accounts and too few credit accounts. In the prior section, we addressed lacking credit and credit history. Conversely, if you apply for too much credit, that can also impact your score.

Every time you apply for a line of credit, whether it's a car, a credit card, or furniture financing, each "hard inquiry" impacts your score. Lots of credit inquiries add up over time.

#7 - Use Credit Monitoring to Track Progress

The different credit bureaus offer credit monitoring services to track your credit score changes over time. Many of these services are free and will also give you access to at least one of your credit scores from the major credit bureaus. With tracking, you'll see if your strategies are making an impact on boosting your credit score.

Raising Your Credit Score

Not all strategies will work for every individual. Your first step should be to pull your credit score from one of the credit reporting bureaus. These reports often offer tips on ways you can boost your score. Once you know what tactic(s) apply to you, start chipping away and watch your numbers rise.

7 Things You Should Know Before Buying a Home

Sat, 13 Feb 2021 14:14:00 GMT

7 Things You Should Know Before Buying a Home

You are not alone.

Luminate home loan officers are here to help you. It's our mission to bring clarity and transparency to home loans—no more sending things into a blackhole and waiting for answers. It's our goal to help you feel informed and engaged at every turn. Whether you're a first-time homebuyer, you're looking to refinance, or have a unique situation, we'll help you understand all the options, so you can have the home of your dreams.

Think about the future.

Most can agree that buying a house requires a larger commitment than signing a year-long lease on an apartment. Think about what your long-term goals are. Do you want to start a family in that home? Get a dog? Start a business? According to the National Association of Realtors, homeowners live in their homes for an average of thirteen years. A lot can change in just thirteen years so make sure you are future-minded when you are starting to shop for homes.

Purchase price isn’t everything.

As with most things in life, there are many costs beyond just the “sticker price” of a house. Costs such as application fees, down payments, inspection fees, insurance, and real estate taxes add up pretty fast! Before you start your home-buying journey, make a list of all potential costs just to be sure there aren’t any surprises along the way.

There is a pre-approval process.

Unfortunately, you can’t just pick out a house you want, put down some cash and move in the next week. There is a pre-approval process every home-buyer has to go through before moving forward and house shopping. Thankfully Luminate makes it accessible in just 4 easy steps:

There are perks for being a first-time homebuyer.

It’s true! If you are a first-time homebuyer, the cards are in your favor. You can be eligible for greater tax breaks, federally backed loans, and you don’t have to adhere to the typical minimum down payment of twenty percent!

A new car loan could prevent you from getting your dream home.

When you know that you are gearing up to start your journey of buying a new home, don’t make any major changes that could impact your credit score. The pre-approval process is based on the time you submit your application. Decisions like getting a new car loan, or making changes in your income could potentially keep you from getting approved for a home loan.

Be realistic about what you can afford.

A good rule of thumb is keeping your housing expenses under 30% of your monthly gross income. Also, make sure to keep your debt-to-income ratio in mind when deciding what you can and can’t afford in a home. Your debt-to-income ratio is determined by how much of your monthly gross income is paying off debts throughout the month. A good DTI is typically under 36% when trying to get pre-approved for a mortgage. Thankfully you don’t have to figure all of this out on your own; a Luminate Home Loan agent is willing and ready to share their knowledge and find the right loan for you!

Although this process may seem like a lot (disclaimer it kind of is), getting the right team in your corner is all you need to make sure you are starting out on the right foot. Luminate Home Loans has many options for whatever stage of life you may find yourself in.

Get in touch today!

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The Significant Impact of Dropping Mortgage Rates

1% Less, 5 Million More: The Significant Impact of Dropping Mortgage Rates

The Unlikelihood of Returning to 4% Mortgages

The Current Housing Market Dynamics

Buyers and Sellers in a Holding Pattern

Federal Reserve's Influence on Mortgage Rates

Strategic Mortgage Decisions for Prospective Homeowners

Why Waiting May Not Be Wise

The Advantage of Buying Now and Refinancing Later

Parents - Are you teaching your kids about credit?

Parents - what are you teaching your children about credit and credit scores?

Stay Secure: How to Shield Your Real Estate Transactions from Wire Fraud

Understanding Wire Fraud in Real Estate

Understanding Wire Fraud in Real Estate

Proactive Steps to Prevent Wire Fraud

Choosing the Right Lender for Security and Peace of Mind

10 Things to do after buying a home!

Welcome to your new home! We know that moving can be a stressful time, but it’s also an exciting opportunity to start fresh and make your new place feel like home. To help you settle in, we’ve put together a list of the 10 things you should do after moving in.

Q&A Regarding Earnest Money

What is all this talk about Earnest Money?

Overcoming Housing Market Fears

Overcoming Housing Market Fears

Historical Perspective on Mortgage Rates

Impact of Job Growth on Housing Demand and Prices

Increased Buyer Competition

Appreciation Trends in Real Estate

Example Scenario:

Financial Drain of Renting:

Strategies to Win in Today’s Housing Market

Fully Underwritten Pre-Approval:

Convert to Cash with NEO’s Power Buyer Program:

Exploring Grant Programs:

Adopting a Strategic Mindset:

Mastering Your Credit Score: The Key to Unlocking Your Dream Home

Mastering Your Credit Score: The Key to Unlocking Your Dream Home ﻿

Is Your Credit Really Important When Buying a Home?

Should I Improve My Credit Score Before Applying for a Mortgage?

What’s the Next Step?

Buy Your New Home Now, Sell Later (Formula for Low Stress & Maximum Profit)

Beyond the Sale: The Long-term Vision

Your Financial Journey, Our Expert Guidance

Move a Step Ahead

Factors That Will Impact Your Mortgage Rate In 2024

Factors That Will Impact Your Mortgage Rate In 2024

Economic Health & Supply and Demand

Inflation

The Federal Reserve

Your Credit Score

Your Loan-to-Value Ratio

The Bottom Line

House Hacking: How to Save Money and Build Wealth with a Multi-Unit Property

House Hacking: How to Save Money and Build Wealth with a Multi-Unit Property

Benefits of House Hacking

House Hacking Cost Scenarios

Scenario 1: Purchasing a Duplex for $450,000

Scenario 2: Purchasing a Triplex for $750,000

Scenario 3: Purchasing a Fourplex for $1,100,000

You Can Now Purchase a Multi-Unit Property with Only 5% Down!

The Bottom Line

Why The No-Cost Refinance Makes Sense - Buy Now, Build Equity, and Save Big in 2024

Why The No-Cost Refinance Makes Sense - Buy Now, Build Equity, and Save Big in 2024

Understanding Refinance Closing Costs

What is a No-Cost Refinance?

When Should You Consider a No-Cost Refinance?

The Bottom Line

Debt-Consolidation Refinance: Use Your Home Equity to Pay Off Debt and Save Money

How Does a Debt-Consolidation Refinance Work?

Does a Debt-Consolidation Refinance Actually Save You Money?

Don’t Forget About Closing Costs

Debt-Consolidation Refinance Example

Current Payment

New Payment

Benefits of a Debt-Consolidation Refinance

Is a Debt-Consolidation Refinance Right for You?

Rates Are High and Demand Is Low...So Why Aren't Home Prices Falling?

Rates Are High and Demand Is Low...So Why Aren't Home Prices Falling?

Why Are There No Homes for Sale Right Now?

Will Low-Rate Mortgage Holders Ever Sell?New Paragraph

Housing Supply Is Still Near Historic Lows

Mastering Your Credit Score: The Key to Unlocking Your Dream Home