Coaching and teaching - many through the mortgage process and others on the field

Category: Mortgage (Page 1 of 34)

Second Homes and Investment Properties – New Regulations and Rates

Fannie Mae and Freddie Mac are tightening the underwriting criteria for second homes and investment properties. They will also begin to limit the number of these mortgages that they will acquire.

“Recent amendments to our senior preferred stock purchase agreement with Treasury impose additional risk criteria on the loans we acquire,” the Government Sponsored Enterprise said in a letter. “One of those restrictions is a 7% limit on our acquisition of single-family mortgage loans secured by second home and investment properties.”

This means that non-owner occupied transactions (2nd homes and investment properties) will become a bit more difficult in terms of qualification and slightly more expensive, in terms of interest rates.

Lenders are now being forced to add to the cost of the loan and raise interest rates – anywhere from 50 basis points to as high as 250 bps.  That can mean an increase in rate of 1/8% to 1.25%, depending on the investor.

Finance of America, my employer, has added 50 basis points for all 2nd home and investment property purchases and refinances. This is on the low side, relative to many in the industry, as others that I’ve spoken to have added as much as 250 bps.

From Investopedia: “Basis points, otherwise known as bps, are a unit of measure used in finance to describe the percentage change in the value of financial instruments or the rate change in an index or other benchmark. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.”

Don’t hesitate to contact me for more information to see how this might impact your upcoming purchase.

March 2021 Mortgage Rate and Market Update

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As inflation rises, it typically causes mortgage rates to move higher as well.  That’s because inflation is the arch enemy of interest rates, since it erodes the buying power of the fixed return that a mortgage holder receives.

While inflation may look tame to everyone at this time, that looks like it will change when you dig a little deeper. 

Inflation Fears

But in the coming months, the inflation levels are expected to rise significantly, as the readings for the more current months replace the extremely low numbers from 2020. 

A look at the closely watched “Consumer Price Index Core Rate” of inflation, which strips out the volatile food and energy sectors, shows a current reading of just 1.3% inflation for the past 12 months.  This has helped interest rates remain low.

It’s quite possible to see the rate of inflation rise towards 2.5%.  It’s likely that this will influence interest rates to higher levels.

For borrowers, the good news is that inflation is likely to become more tame later this year.  So now may be a great time for you to take advantage of the low-rate environment before these inflation readings start to move higher.

Secondly, our central banks have artificially depressed sovereign bond yields for years. Now, a small rise in yields can cause a move higher in interest rates, as well.

2nd Home and Investment Properties

Finally, Fannie Mae is tightening the underwriting criteria for second homes and investment properties, the government sponsored entity said Wednesday. 

“Recent amendments to our senior preferred stock purchase agreement with Treasury impose additional risk criteria on the loans we acquire,” the GSE said in a letter. “One of those restrictions is a 7% limit on our acquisition of single-family mortgage loans secured by second home and investment properties.”

This means that non-owner occupied transactions (2nd homes and investment properties) will become a bit more difficult in terms of qualification and slightly more expensive, in terms of interest rates.

Use That Equity

One other thing to consider for current homeowners – a cash-out refinance to utilize the equity in your home to eliminate all other consumer debt.  Many of my clients have saved anywhere from $500 to $1,750 per month in their overall payments.  Find out more on that here…and do reach out to me for more on this subject!

Barry Habib – MBS Highway 2021 Webinar On Demand

On February 4th of this year, industry expert Barry Habib joined Finance of America Mortgage for a presentation on the current real estate marketplace and his opinions on interest rates moving forward into this year and beyond.

It was a fantastic event and if you weren’t able to join us or would like to review it again, I have a link to the recorded version below.

By way of introduction, Barry Habib is a real estate and mortgage industry executive, bestselling author, and founder and CEO of MBS Highway. Barry is also a well known media resource and TV commentator on the mortgage and real estate markets.

Here’s the link:

Barry discussed his predictions for the housing market going forward in 2021 and the benefits of utilizing some key tools to show clients and referral partners the power of home ownership.

Also, regarding the AVM reports and “Bid Over Ask” tools that were talked about during the program – I can easily do them for any property or client you have.

Finally, here are a few links that might help, too:

The Lending Coach 2021 Forecast: https://lendingcoach.net/forecast-2021-real-estate-mortgage-rates/

Bid Over Ask Tool: https://lendingcoach.net/offering-over-asking-price/

I highly recommend that you take a look, as Barry has some fantastic insights into our market!

Lending Coach Forecast 2021 – Real Estate and Mortgage Rates

In taking a look at the 2021 real estate and mortgage rate forecast, I’ll briefly analyze what’s driving the real-estate market and what should impact interest rates over both the long and short term.

Similarly to 2020, the biggest issue will be finding enough homes for buyers, as housing inventory is near all-time lows throughout much of the country. 

At the same time, because of today’s low mortgage rates, housing affordability is at a fantastic level, even with increase in home prices, which is great news for buyers.

Real Estate

First, let’s take a look at 3 different factors regarding real estate that impact pricing – supply and demand, appreciation, and home affordability. 

Supply and Demand

You might remember the idea of supply and demand from your economic or social studies school days. Real estate prices also depend on the law of supply and demand.  When the demand for property is high but property is scarce, prices rise and it becomes what is known as a “seller’s market”. Alternatively, when the number of available properties increases and saturates the market, prices typically drop.

Right now, we are in a time of low supply and high demand – making prices rise.

There are a few reasons for this phenomenon, and we will see them into 2021 and beyond.

Demographics

First of all, the number of first-time home buyers is actually increasing, mainly due to the number of babies born in the late 1980s and early 1990s.  The average age of a first-time buyer is 33…and you can see by the chart below, we are just getting started:

Millennials are expected to drive the market in 2021, while Gen-Z buyers, the oldest members of which will turn 24 in 2021, will also step onto the playing field as first-time buyers.

Over the next 4 to 5 years, there will be more buyers in the marketplace, increasing demand, keeping prices moving slightly upward.

New Construction

Housing development continues to lag across the nation. Thanks to a 3 to 6 month shutdown that started in March of last year due to Covid-19, new construction slowed considerably in 2020:

As you can see by the chart, there just were not as many homes built last year than in years prior.  This is creating shortage of inventory for would-be buyers…which means prices move higher, as well.

Inventory

If you’ve been checking up on the latest real estate news, you’ve probably seen quite a few reports saying that housing inventory is low at the moment. Well, those reports are absolutely correct:

As you can see in the chart above, inventory has acutely been falling since 2011 and has reached all-time lows in 2020.

Frank Nothaft, a senior vice president and chief economist at CoreLogic, said low home inventory has led to rapidly increasing prices across the nation as dedicated buyers compete for a limited number of homes.

However, he said the number of homes for sale will increase with widespread vaccination for the coronavirus, which kept some of the most vulnerable homeowners from selling this year.

Affordability

Believe it or not, current research shows that housing has actually become more affordable this year, despite home appreciation and tight inventory. Affordable homes are possible thanks to lower mortgage rates and greater purchasing power.

For example, weekly earnings are up more than 5.9% versus a year ago.  Additionally, only a portion of your income goes towards paying your mortgage.  A 5.9% rise in income can offset a much greater percentage rise in housing expense.

For the average home buyer, month-to-month housing costs are lower than they’ve been at almost any point in the last four years because real wages are up and interest rates are down, even considering the Covid-19 pandemic.

This tells us that homes are actually more affordable, even though they have appreciated significantly over the last few years.

You can find out some specifics about housing affordability here….

Appreciation

Real estate appreciated at 8.2% year-over-year from 2019 to 2020 according to Core Logic.

This is fantastic for homeowners, and although 2021 might not have the same increase, most experts see appreciation to be in the 4% to 6% range in 2021. 

“The housing market performed remarkably well in 2020 despite the volatile economic state. While we can expect to see lingering effects of COVID-19 resurgences and subsequent shutdowns in the early months of 2021, vaccine distributions and stimulus actions should revitalize economic activity and keep home purchase demand and home price growth strong. Frank Martell, President and CEO of CoreLogic

Interest Rates

Mortgage rates have risen a little during the first 10 days of 2021, due to the market’s concern that there will be increased spending, debt, and inflation with the incoming administration.  The 10-Year Treasury yield is now at its highest level in a year, which is the best tracker of mortgage rates – find out more about that here…

Federal Funds Rate

How can mortgage rates actually rise when the Fed Funds Rate remains at zero?  Let’s remember that the Fed Funds Rate and Mortgage Rates are two very different things.

The chart below shows how mortgage rates move in a similar direction to the Federal Funds rate, but still move up-and-down, even when The Fed has rates at 0%.

As you can see, mortgage rates can move up over 1% even with the Federal Funds rate at 0%!

You can find out more about the relationship between the Fed and mortgage rates here…

Mortgage Rates

It’s important to remember that although we’ve seen a little move higher in mortgage rates in the first week of 2021, they are still near all-time low levels.

Per most industry analysts, rates should remain low for 2021, although there may be some ups-and-downs due to inflation related pressure.

Mortgage rates are affected by inflation because inflation erodes the buying power of the fixed return that a mortgage holder receives.  Interestingly, the best way to combat inflation is by raising the Fed Funds Rate.  If inflation begins to rise, and there are already some signs of this, Mortgage Rates will start to climb in response.  All this can occur while the Fed Funds Rate is at zero. 

With that said, the industry experts I follow seem to think that we should see rates in the 3% to 4% range for the 30-year mortgage over the course of 2021.

Debt and Interest Rates

One reason to believe rates will stay low, even with Covid-19 concerns and inflation, has to do with governmental debt loads relative to mortgage rates.  Historically, the higher the debt, the lower rates move. 

The chart above shows the debt level in red (moving upward) and interest rate level in blue (moving downward).  With all of the debt that the US has taken on in the last year, we can probably expect to see rates stay relatively low.

In Conclusion

2021 looks to be a positive one for both buyers and sellers, although the market would clearly be considered a “seller’s market”, because inventory is so low.

However, because real wages are up, home affordability is up, and interest rates are forecasted to remain low, buyers are in a great position to purchase. 

To sum up the 2021 real estate and interest rate forecast:

  • Mortgage rates are likely to remain low
  • Housing inventory will continue to remain low
  • Demand for real estate will rise due to a combination of factors
  • Home prices will continue to move upward
  • Housing will still remain affordable, due to low rates

In reality, now is a fantastic time to purchase or refinance and take advantage of market appreciation and low mortgage rates. Contact me for more information, as it would by my privilege to help you.

New Conforming Loan Limits for 2021

The Federal Housing Finance Agency announced new baseline conforming loan limits for Fannie Mae and Freddie Mac in 2021: $548,250.

This is a 7.5% increase from the 2020 limit of $510,400 and marks the fifth consecutive year of increases from the FHFA.

This is important because now buyers and borrowers can purchase a higher priced home and still stay within conforming loan guidelines. That means easier qualifications at higher price points.

In 2016, the FHFA increased the Fannie and Freddie conforming loan limits for the first time in 10 years. Since then, the baseline loan limit has gone up by $131,250.

You can find out more here…

These new limits apply to conventional, conforming loans (those sold to or backed by Fannie Mae and Freddie Mac), for both refinances and purchases.  Any loan amounts above these limits would be considered “jumbo” loans and fall outside of conventional guidelines.

Do I have to wait until 2021 to take advantage of a higher conforming loan amount?

Actually, no.  The change actually applies to the date that Fannie and Freddie sign off on the new loan (either via “delivery” or “securitization”). 

Essentially, any loan originated today would most likely close in 2021 and fall under the new loan limits.

Please do contact me for more information!

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