Renting Archives - Hanover Mortgages

Apache is functioning normally

November 4, 2024 by Brett Tams

Everyone knows high mortgage rates have been a total drag lately, especially for prospective home buyers facing extremely high asking prices.

But what if I told you that nearly half of those who purchased a home recently still got an interest rate below 5%?

Sounds pretty unlikely, given the fact that the 30-year fixed is back over 7%, and never went lower than 6% for the duration of 2024.

However, that didn’t stop 45% of “mortgage buyers” (non-cash buyers) from obtaining a sub-5% mortgage rate, per a new survey from Zillow.

As for how, the most common reason cited was special financing offered by the seller or home builder.

Special Mortgage Rates from Home Builders

One of the most common ways to get a below-market mortgage rate has been via the home builders.

They often operate in-house mortgage companies to ensure their customers make it to the finish line.

And thanks to a financing tool call “forward commitments,” they’re able to offer super low mortgage rates to the customers who use their captive lender.

Those commitments involve buying low mortgage rates in bulk, ahead of time, and then deploying the low rates to customers who buy properties in select communities.

While some only offer temporary rate buydowns, lately many have offered permanent rate buydowns for the full 30-year loan term.

This probably sounds pretty sweet, but keep in mind you need to buy a newly-built home to get your hands on a special rate.

Some have argued that the discount is built into a higher sales price, so proceed with caution.

Also read my piece on using the home builder’s mortgage lender for more on that.

For the record, individual home sellers can offer sales concessions that can be used to buy down the mortgage rate too.

And together with builder buydowns, that was the most commonly cited reason for a low rate at 35%.

Another 26% said their offer was contingent on a rate buydown from the seller/builder. So more than half of the low rates came from these arrangements alone.

Buying Points to Lower Your Rate

The third most common reason a recent home buyer was able to get a low mortgage rate was due to paying discount points (at 23%).

If you have the available funds, it’s always an option to buy down your rate by paying some money upfront.

This is a form of prepaid interest where you pay today for savings tomorrow. The key though is keeping the loan long enough to experience the savings.

The problem with this is if mortgage rates happen to go even lower before the breakeven point (when the points become profitable), it disincentivizes a rate and term refinance.

Or if you happen to sell the property too soon, same thing. In contrast, temporary buydowns don’t result in lost funds.

If you sell/refinance soon after a temp buydown, the leftover funds are typically applied to the outstanding loan balance.

Long story short, there’s risk when buying points in that you’ll leave money on the table.

The same could be said of temporary buydowns in that mortgage rates might not be lower when the rate reverts to the higher note rate.

A lot of folks have bought the house and dated the rate, assuming the mortgage rates would come down. So far they haven’t.

Got a Mortgage from a Friend or Family Member

Another 23% of buyers said they got a low rate because they borrowed from a friend or family member.

This is pretty surprising to me seeing that it’s such a large share of the population. I can’t imagine that many home buyers getting special financing from mom and dad or someone else.

But per Zillow’s study, this is what the numbers indicate. For me, it’s pretty rare to use intrafamily financing, but it definitely is a thing, especially with rates so much higher today.

An example would be your parents offering to finance your home purchase with a special low rate from the Bank of Mom and Dad, perhaps at a cool 3.99%!

If you’re so lucky, great. But for most this sadly isn’t a reality.

Another common reason folks got a sub-5% mortgage rate was by refinancing after they bought the home.

They must have nailed the timing (and paid points) because rates never officially went below 6% this year.

Lastly, sub-5% mortgage rates were associated with adjustable-rate mortgages, homebuyer assistance, and shorter loans terms, such as the 15-year fixed.

Of course, if it’s not a 30-year fixed, sub-5% doesn’t have quite the same meaning or value.

Still, it’s impressive to see that nearly half of home buyers got creative and found a way to overcome the mortgage rate hurdle.

Problem is there’s still the high home price to contend with, and little way around that at the moment.

The Zillow Consumer Housing Trends Report 2024 study involved 18,500 successful home buyers and was fielded between March and September 2024.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.

Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

November 2, 2024 by Brett Tams

Seems pretty clear now that it doesn’t matter what economic data shows up between now and next week.

Mortgage rates aren’t going to improve by any significant margin this week or until after the election.

Unfortunate for those who need to lock their rate and/or close this week. And the past month for that matter.

Lenders are essentially in a holding pattern and continuing to price defensively until at least next Wednesday. Likely longer…

Simply put, the outcome of the election matters more than the data right now.

Biggest Presidential Election in Years

We all know next week’s presidential election is a big one. One of the bigger ones in years. Aside from it being very contentious, a lot is at stake regarding the direction of the economy.

Thus far, the markets have priced in a Trump victory, at least in a defensive type of way.

Without getting political here (I never have any interest in doing that), it doesn’t appear that either candidate winning is helping 10-year bond yields at the moment.

The best way to track mortgage rates is via the 10-year bond yield, which works well historically because 30-year fixed mortgages often last about a decade too.

Despite being offered for 30 years, most are paid off earlier due to a refinance or a home sale.

Lately, the 10-year yield has climbed higher and higher, with most market pundits pointing to increased government spending as the culprit.

Long story short, with more government spending expected, any way you slice it, yields have gone up. Investors want to be compensated when they buy government debt (bonds).

But one could argue that this was already known several months ago, when yields were closer to 3.50% vs. about 4.35% today. What gives?

Bond Yields Are Higher Because the Worst of Everything Is Baked In

Without getting too technical here, bond yields have basically priced in the worst of everything lately. Just look at the chart above from CNBC.

Whether it’s the election outcome, possible government spending, economic data, it’s all priced in in the worst way possible.

This is why we’ve seen the 10-year yield climb nearly a full percentage point since the Fed cut rates back in mid-September.

And despite a very weak jobs report this morning, the 10-year yield climbed up another ~6 basis points.

Yes, it was a report affected by hurricanes and labor strikes, but on a normal first Friday of the month you’d likely see yields drop and mortgage rates improve given the immense weakness.

That’s not happening this week and it’s no real surprise at this point. As noted, there are bigger things on investors’ minds.

The good news is we should get clarity next week once the votes are tallied and we hopefully have a clear winner.

Of course, if things drag on, that could be bad for bond yields too. Essentially, anything and everything is bad for bond yields, and thus mortgage rates, right now.

[How Do Presidential Elections Affect Mortgage Rates?]

Mortgage Rates Could See a Relief Rally

Now the good news. Because there’s been absolutely no good news for about a month and a half, a major mortgage rate relief rally could be in store.

Similar to any other trend, once it runs out of steam, a reversal could be in store. Think about a stock market selloff. Or a short squeeze.

After a few bad days or weeks in the market, you often see stocks rally. The same could be true for bonds, which have been pummeled for over a month now.

Eventually they get oversold and there is a buying opportunity.

If bonds prices do in fact rally once this election is decided, simply due to finally getting some clarity, bond yields could sink in a hurry.

The defensive trade could unwind and mortgage rates may finally get some relief as well.

It’s never a guarantee, but given that basically everything has worked against mortgage rates for over a month, they could experience a big win as soon as next week.

Of course, economic data will continue to matter. But importantly, it will matter again after basically being kicked aside during election season.

Remember, weak economic data is generally good for mortgage rates, so if unemployment continues to rise, and inflation continues to fall, rates should come down over time as well.

Read on: Mortgage Lenders Take Their Time Lowering Rates

(photo: Paul Sableman)

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.

Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

October 30, 2024 by Brett Tams

Figure Lending has unveiled a new piggyback loan at a time when housing affordability has rarely been worse.

Call it a sign of the times, and maybe an eerie reminder of the early 2000s housing market.

But perhaps with a few added safeguards this time around, such as actual loan underwriting!

The new product, which is a home equity line of credit (HELOC), will serve both new home buyers and existing homeowners looking to access more of their equity.

It will be available at Figure and via their partner network of lenders, banks, credit unions, loan servicers, and home builders.

Figure’s New Piggyback HELOC Allows for Lower Down Payments

As noted, Figure’s new Piggyback HELOC aims to serve both new home buyers and existing homeowners.

Those still searching for that right property can use the HELOC as a second mortgage that closes concurrently with a first mortgage, hence the name piggyback.

For example, they can take out a first mortgage at an 80% loan-to-value ratio (LTV) and the HELOC for another 10% or more. This is known as an 80/10/10 loan.

Other variations include 80/20 loans, which indicates zero down payment. These were quite popular during the early 2000s.

It’s unclear how high Figure will go on this product, but my understanding is their max CLTV is 95%.

In other words, you might be able to take out a first and second mortgage while bringing in just five percent down payment. This would be an 80/15/5.

The use of a second mortgage can help home buyers avoid private mortgage insurance (PMI) and possibly secure a lower mortgage rate.

Keeping the first loan at 80% eliminates the need for PMI, possibly reduces loan-level price adjustments, and can help a borrower stay below the conforming loan limit.

Often times, conforming loan rates are cheaper than jumbo mortgage rates. And qualifying tends to be easier for loans backed by Fannie and Freddie as well.

Recent Home Buyers Can Combine It with a Cash-Out Refinance

If you’re an existing homeowner, Figure argues that you can use a piggyback second to “transition to a lower-cost alternative.”

They cite an example where a recent home buyer wants to tap equity via a cash-out refinance, but is subject to the 80% LTV maximum on agency loans backed by Fannie and Freddie.

Even if they originally purchased the home with less than 20% down, it might be possible to lower the first mortgage to 80% LTV and drop PMI while tacking on a second mortgage for a higher combined CLTV.

For example, someone who bought a home for $450,000 with 10% down might be able to take out a new first mortgage loan at 80% LTV and add a piggyback for an additional 15%.

In the process, they get access to more of their home equity, but also put themselves in a position where they owe more and could be closer to being in an underwater position if home prices drift lower.

Figure offers HELOCs as large as $400,000, meaning loan amount shouldn’t be a roadblock for most borrowers.

Figure’s HELOCs Are a Little Different

Figure calls itself the #1 non-bank home equity line of credit in the United States.

Despite only launching in 2018, Figure Lending has already originated more than $12 billion in home equity lines of credit.

Part of that amazing growth can be attributed to their use of technology, including a 100% online application process, with no appraisal/title fees, and e-Notary services in many states.

And the process can be done quickly, with funding in as little as five days.

But I should point out that their HELOCs require the full draw on the line amount at closing. And they charge an origination fee based on that draw, ranging from 0-4.99%. So costs can be steep.

Their HELOCs are also fixed-rate loans, which is odd because most HELOCs are variable and tied to the prime rate, which goes up or down whenever the Fed changes its fed funds rate.

For the record, prime is expected to come down over the next year as the Fed eases its monetary policy.

Figure’s HELOC is already being offered by some of the largest mortgage lenders out there, including CrossCountry Mortgage, Fairway Independent Mortgage, Rate (formerly Guaranteed Rate), Movement Mortgage, Union Home Mortgage, and many more.

The company’s products are now available in 49 states and the District of Columbia.

(photo: Low Jianwei)

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.

Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

October 29, 2024 by Brett Tams

Renting does not contribute to your wealth in the same way that owning a home can. Although you avoid property maintenance and other homeowner-related expenses, rental payments do not offer any potential for financial return, and you don’t benefit from market appreciation like homeowners do.

Making the Decision: Ownership or Renting?

The choice between renting and owning ultimately depends on your unique goals, financial situation, and lifestyle. Homeownership can be incredibly rewarding if you’re looking for stability, a long-term investment, and a place to call your own. On the other hand, if you prioritize flexibility, lower upfront costs, and a more temporary housing option, renting might suit your lifestyle better.

Whether you choose to buy or rent, knowing the benefits of each option can empower you to make an informed decision that aligns with your financial health and personal aspirations.
Are you looking to enter the real estate market this fall? Give us a call today! One of the experienced agents at Zoocasa will be more than happy to help you through the exciting home-buying process!

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Contact us today to talk to a Realtor in your area

Source: zoocasa.com

Apache is functioning normally

October 28, 2024 by Brett Tams

Both Fannie Mae and Freddie Mac announced newly expanded appraisal waivers to reduce costs and help more first-time home buyers purchase a property.

The pair already offer appraisal waivers on some of the loans they guarantee, but the loan-to-value ratio (LTV) is currently capped at 80%.

This means you must come in with a least a 20% down payment to avoid the cost and potential hassle of a traditional appraisal.

To further streamline this process and ease the burden on lower-income borrowers, this number will increase to 90% LTV beginning in the first quarter of 2025.

And it will be expanded to the program limits (e.g. 97% LTV) for their more robust inspection-based appraisal waivers.

You Might Not Need an Appraisal for Your Next Home Purchase

While appraisal waivers aren’t all that new; they were introduced by Fannie Mae in 2016 for refinance transactions and later expanded to home purchases in 2017, they’re limited in reach.

In other words, many home buyers still need to pay for an appraisal when they apply for a mortgage.

This results in an added cost, which can range from say $400 to $1,000 or more. And a longer home loan process as the appraisal is ordered, conducted, and submitted.

It can also lead to uncertainty regarding the collateral value, possibly jeopardizing the loan late in the game if the human appraiser returns with a value below the purchase price.

For these reasons, receiving an appraisal waiver can be a blessing. What’s not to like? A faster, lower-stress loan approval and reduced borrowing costs.

But as mentioned, these only applied to loans where borrowers were able to come in with a 20% down payment.

This clearly didn’t help those most in need, namely first-time home buyers and/or lower-income borrowers who could only muster 3-5% down.

Well, beginning in the first quarter of 2025, these money-saving waivers will be expanded from an 80% maximum LTV to 90% LTV/TLTV.

So if you come in with just 10% down on your home purchase, you might soon be able to skip the appraisal too.

And the maximum LTV ratio for purchase loans eligible for inspection-based appraisal waivers will jump from 80% all the way to 97%.

This means borrowers will be able to get a 3% down Home Possible loan from Freddie Mac, or a Fannie Mae HomeReady mortgage without the appraisal.

Understanding the Different Appraisal Waivers Available Today

First off, I should note that these appraisal waivers apply to conventional loans, not government loans such as FHA loans or VA loans.

So only conforming loans backed by Fannie Mae and Freddie Mac qualify for an appraisal waiver.

Secondly, there are two different types of appraisal waivers. Let’s talk about the straight up waivers that rely solely on data and technology to accept the lender-provided value.

Fannie Mae’s is known as “Value Acceptance”
Freddie Mac’s is known as automated collateral evaluation (ACE).

These typically require that a prior appraisal that was conducted on the subject property be found in the database.

They are also limited to one-unit properties (including condos) for primary residences and second homes.

In addition, there is a $1 million maximum estimated value (or sales price) for properties to receive the waiver.

The good news is there is no fee to the borrower for these options, which could save them several hundred dollars or more.

There are also so-called inspection-based appraisal waivers, which will see their maximum LTV increase from 80% to 97%.

These more robust appraisal alternatives require property information to be physically collected on-site by trained data collectors.

Similar to an appraisal, the originating lender arranges for property data collection, but the result should be decreased costs and faster turn-times.

The cost of an inspection-based appraisal might be half the cost of a traditional appraisal, so perhaps $200 or so vs. $400 or more.

Does This Introduce Added Risk to the Housing Market?

While these changes will likely be welcomed with open arms by mortgage lenders (and not so much by appraisers), there is the question of risk.

The collateral value of the property is a huge part of the equation when underwriting and approving a loan.

If home appraisals are waived, one could argue that the loan is inherently riskier.

However, this is actually why Fannie Mae stopped using the phrase “appraisal waiver” and replaced it with Value Acceptance.

That change was implemented to better reflect the actual process, which relies upon data collection and technology to accept the lender-provided value.

This isn’t dissimilar from a human appraiser, who also uses data collection to come up with an appropriate value that supports the entered price.

But my guess is there will be some scrutiny, especially as the changes are being introduced at a time when housing affordability has rarely been worse.

Allowing a home buyer to forgo an appraisal when putting just 3% down sounds a little scary when home prices are at/near all-time highs and have increased ~50% in just the past few years.

It also widens the gap between conventional loans and government-backed loans, the latter of which are already known to be more difficult to get approved for due to inspection/appraisal requirements.

(photo: m kasahara)

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.

Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

October 25, 2024 by Brett Tams

We’re currently in a strange sort of housing crisis where existing homeowners are in a fantastic spot, but prospective buyers are mostly priced out.

The issue is both an affordability problem and a lack of available inventory problem. Namely, the type of inventory first-time home buyers are looking for.

So you’ve got a market of haves and have nots, and a very wide gap between the two.

At the same time, you’ve got millions and millions of locked-in homeowners, with mortgages so cheap they’ll never refinance or sell.

This exacerbates the inventory problem, but also makes it difficult for mortgage lenders to stay afloat due to plummeting application volume.

The solution? Offer your existing customers a second mortgage that doesn’t disturb the first.

Loan Servicers Want to Do More Than Service Your Loan

Over the past several years, mortgage loan servicers have been embracing technology and making big investments to ramp up their recapture game.

They’re no longer satisfied with simply collecting monthly principal and interest payments, or managing your escrow account.

Realizing they’ve got a goldmine of data at their fingertips, including contact information, they’re making big moves to capture more business from their existing clientele.

Why go out and look for more prospects when you’ve got millions in your own database? Especially when you know everything about your existing customers?

Everyone knows mortgage rate lock-in has effectively crushed rate and term refinance demand.

And cash out refinances are also a non-starter for many homeowners unless they have other really high-rate debt that’s pressing enough to give up their low-rate mortgage.

So lenders are left with a pretty small pool of in-the-money borrowers to approach. Still, thanks to their investments, they’re getting better and better at retaining this business.

Instead of their customers going to an outside lender, they’re able to sell them on a streamline refinance or other option and keep them in-house.

But they know the volume on first mortgages just isn’t there, so what’s the move? Well, offer them a second mortgage, of course.

Your Loan Servicer Wants You to Take Out a Second Mortgage

I’ve talked about loan servicer recapture before, where new loans like refis stay with the company that serviced the loan.

So if you have a home loan serviced by Chase, a loan officer from Chase might call you and try to sell you on a cash out refi or another option.

I’ve warned people to watch out for inferior refinance offers from the original lender. And to reach out to other lenders when they reach out to you.

But that was just the tip of the iceberg. You’re going to see a big push by servicers to get their existing customers to take out second mortgages.

This is especially true on conventional loans backed by Fannie Mae and Freddie Mac, for which borrowers are mostly locked-in and streamline options don’t exist.

They know you’re not touching your first mortgage, but they still want to increase production.

So you’ll be pitched a new HELOC or home equity loan to accompany your low-rate first mortgage.

As a result, you’ll have a higher outstanding balance and blended rate between your two loans and become a more profitable customer.

This is Pennymac’s approach, as seen above, which launched of closed-end second (CES) mortgage product in 2022. They are one of the nation’s largest mortgage servicers.

It allows their existing customers to access their home equity while retaining their low-rate, first mortgage. And most importantly, it keeps the customer with Pennymac.

Notice how much higher the recapture percentage is once they tack on a CES.

Other servicers are doing the same thing. Just last month, UWM launched KEEP, which recaptures past clients for its mortgage broker partners.

Second Mortgage Push Might Allow the Spending to Continue

One major difference between this housing cycle and the early 2000s one is how little equity has been tapped.

In the early 2000s, it was all about 100% cash out refis and piggyback seconds that went to 100% CLTV.

Lenders basically threw any semblance of quality underwriting out the door and approved anyone and everyone for a mortgage.

And they allowed homeowners to borrow every last dollar, often with faulty appraisals that overstated home values.

We all know how that turned out. Fortunately, things actually are a lot different today, for now.

If this second mortgage push materializes, as I believe it will, consumer spending will continue, even if economic conditions take a turn for the worse.

Lots of Americans have already burned through excess savings squirreled away during the easy-money days of the pandemic.

And you’re hearing about folks being a lot more stretched, not even able to weather three months without income. But if they’re able to access a new lifeline, the spending can go on.

Then you start to envision a situation similar to the early 2000s where homeowners are using their properties as ATMs again.

In the end, we might start to see CLTVs creep higher and higher, especially if home prices flatten or even fall in certain overheated metros.

The good news is we still have the highest home equity levels on record, and home equity lending remains quite subdued compared to that time period.

But it should be noted that it hit its highest point since 2008 in the first half of 2024. And if it increases substantially from there, we could have a situation where homeowners are overextended again.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.

Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

October 25, 2024 by Brett Tams

Another fintech has been quietly growing in the mortgage space, looking to solve the age-old “buy before you sell” conundrum.

A major challenge for prospective move-up buyers these days is unloading their old property while securing a new residence.

Exacerbating the issue is a continued lack of for-sale inventory, coupled with waning affordability thanks to high home prices and mortgage rates.

This can make it difficult to float two mortgage payments while finding a buyer for their old home.

Enter Calque, which partners with local mortgage lenders to ensure the home loan piece is solved.

Calque’s Trade-In Mortgage

The Austin, Texas-based company actually offers two products to make it easier to buy and sell a home at the same time.

Their so-called “Trade-In Mortgage” allows home sellers to gain access to their home equity ahead of time without needing to sell first.

This second mortgage acts as a bridge loan, freeing up liquidity so you can make a stronger offer.

And it comes with a guaranteed back-up offer where Calque will buy your old home, allowing you to submit cash-like offers.

This gives buyers increased purchasing power in a number of different ways, whether it’s an increased down payment, larger cash reserves, or the ability to pay off other high-cost debt.

It can also make the buyer more competitive in a housing market that continues to be plagued by low inventory.

If you find yourself in a bidding war, coming in with a larger down payment can help you win the property over other bidders.

Even if competition isn’t strong, a larger down payment may allow you to make a low-bid offer, as the seller will favor an offer with more money down.

In addition, you can offset the cost of a higher mortgage rate on the replacement property by putting more money down.

A few months back, a friend of mine sold his old home with a super cheap mortgage and used the sales proceeds to pay down the new high-rate mortgage.

While this was a good solution to cut down on his interest expense, it didn’t lower his mortgage payments, which still amortize normally despite the extra payment.

This means he’ll either need to request a loan recast to lower future payments, or he’ll need to wait for a good opportunity to apply for a rate and term refinance.

The Trade-In Mortgage allows you to apply a larger payment on the new home upfront before you sell your old one.

As a result, you won’t necessarily need to refinance or complete a recast since lower monthly payments will be reflected by the smaller loan amount.

You may even be able to get a lower mortgage rate thanks to a lower loan-to-value ratio (LTV), and/or avoid private mortgage insurance (PMI) in the process.

And you can use some of the money from the bridge loan to fix up your old home so it sells for a better price!

Calque’s Contingency Buster

Recently, Calque rolled out a “lighter” buy before you sell option known as “Contingency Buster.”

It allows home buyers to achieve the same basic result without taking out a second mortgage.

In the process, they can make offers without home sale contingencies and exclude the old mortgage payment from their DTI ratio.

As long as your lender is approved to work with Calque, you can make a non-contingent offer on a new home while not worrying about having to qualify for two mortgages.

It’s hard enough to afford one mortgage, so attempting to float two at the moment is likely a deal-breaker for most.

Like the Trade-In Mortgage, Contingency Buster leverages the company’s Purchase Price Guarantee (PPG).

It’s a binding backup offer put in place that will only be employed if your current home doesn’t sell within 150 days.

The agreed-upon price will likely be below-market, with the sample calculator on their website displaying 70% or 80% of estimated value offer.

So obviously you’d still want to sell your home on the open market to a buyer other than Calque.

How Much Does Calque Cost?

There are three possible fees depending on which program you choose.

This includes a $2,000 flat fee paid to Calque, along with 1% of the Purchase Price Guarantee amount.

For example, if they offer to buy your old home for $600,000, it’d be $6,000 + $2,000, or $8,000 total, taken from your sales proceeds.

If you needed the bridge loan to access your equity ahead of time via the Trade-In Mortgage program, there’s also a $550 flat fee. And the interest rate is apparently 8.5% on that loan.

So you’d be paying some interest until you closed on the new home and were able to pay off the bridge loan with the proceeds.

Those simply using the Contingency Buster would only owe the $2,000 plus 1% of the offer price. This seems to be the case whether they sell the property on the open market or not.

Is This a Good Offer?

Whenever I come across programs like this, I try to determine if they’re a good deal or not.

Ultimately, many prospective home buyers can’t buy a new home without it being contingent on the sale of their old home.

It’s just impossible for a lot of folks to carry two mortgages from a qualification standpoint.

Even if they could, there’s also the uncertainty of the old home being stuck on the market and continuing to carry that cost.

So from that perspective, this alleviates those problems and concerns. But as noted, there are costs involved with the program.

And the biggest potential cost is selling your home for just 70% or 80% of its value. While the other fees are reasonable sounding, selling for a 20-30% haircut isn’t great.

In other words, Calque could be beneficial, but you’d still want to sell your old home to a third-party buyer for top dollar (or as close to it as possible).

Otherwise you could be leaving a ton of money on the table. And it kind of defeats the purpose of using the program to begin with.

For me, this means understanding upfront how easy it’d be to sell your current home and at what price to avoid any unwanted surprises.

Lastly, you’d need to use a mortgage lender who is approved to work with Calque. So you’ll also need to ensure this lender is competent and well-priced!

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.

Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

October 23, 2024 by Brett Tams

With mortgage rates surging higher again, somewhat unexpectedly, a thought came to my mind if you’re currently home shopping.

A couple years ago, I threw out the idea to adjust your maximum purchase price lower when looking for a property.

That post was driven by the many home sales that were going way above asking at the time. In other words, a home may have been listed for $600,000, but eventually sold for $700,000 in a bidding war.

That was all to do with a very hot housing market, driven in large part by a combination of record low mortgage rates and very low for-sale supply.

Today, we still have relatively low inventory, but the cheap mortgage rates have come and gone.

And now that they’re so volatile, you may want to input a higher rate into your mortgage calculator to ensure you don’t get caught out.

Mortgage Rates Are Highly Volatile Right Now

At the moment, mortgage rates are super unpredictable. While they had enjoyed a very good 11 months, falling from as high as 8% to nearly 6% in early September, they’ve since reversed course.

The 30-year fixed was nearly back into the high 5% range before the Fed cut rates and a better-than-expected jobs report arrived.

Sprinkle in some doubting about the Fed’s pivot and the upcoming uncertainty regarding the election outcome and home buyers are now facing a rate nearly 1% higher.

Per MND, the 30-year fixed has risen from a low of 6.11% on September 17th to 6.92% as of October 23rd.

Talk about a rough month for mortgage rates, especially since many expected the Fed’s rate cutting campaign to be accompanied by even lower mortgage rates.

It’s a good reminder that the Fed doesn’t control mortgage rates, and that it’s better to track mortgage rates via the 10-year bond yield.

Also, those yields are driven by economic data, not what the Fed is doing. By the way, the Fed makes moves based on the economic data too. So follow the economic data for crying out loud!

Anyway, this recent move up serves a great reminder that mortgage rates don’t move in a straight line. And to expect the unexpected.

Err on the Side of Caution By Inputting a Higher Mortgage Rate

If you’re currently looking to purchase a home, it’s generally a good idea to get pre-qualified or pre-approved upfront.

That way you’ll know if you actually qualify for a mortgage, and at what price point, including necessary down payment.

The thing is, these calculations are only as good as the inputs. So if your loan officer or mortgage broker puts in overly favorable numbers, it could skew the affordability picture.

In other words, you almost want to ask them to put in a mortgage rate that is 1% higher than today’s market rates.

That way you can absorb a higher payment if rates happen to worsen during your property search, which can take months and months to complete.

If rates happen to fall during that time, wonderful, it’ll just be the icing on the cake. Your expected monthly PITI will be even better than expected.

But like those bidding wars that took place, which resulted in higher asking prices, unexpected spikes in rates should also be anticipated.

And if they are, you might look at properties that are more within your price range, as opposed to homes that only work if everything is just right.

Given that homeowners insurance and property taxes are also on the rise (with just about every other cost), it can pay off to be prudent with your proposed home buying budget.

Adjust the Mortgage Rate on the Property Listing Page

If you’re using a site like Redfin to browse listings, there’s a handy mortgage payment calculator on each listing page.

It provides default amounts based on typical down payments, mortgage rates, property taxes, and homeowner insurance.

Let’s say that interest rate is 6.77% today, which is pretty reasonable given current market rates.

If you click on the little pencil icon, you can change it to anything you want. You can also select a different loan type while you’re at it.

Once you do, it tends to save your inputs, so when you look at other properties, the rate you selected earlier should apply to other homes.

This can give you a faster, perhaps more realistic estimate of the monthly payment, instead of a rate that might turn out to be too good to be true.

So you could put in 7.75%, or maybe 7.50%. That way if rates go up, or you qualify for a higher rate thanks to some loan-level price adjustments, you won’t be caught off guard.

You’re basically playing it more conservatively in case pricing worsens, which is the prudent approach.

While you’re at it, you may want to review the other inputs to ensure they are reflective of your proposed loan.

Are you really going to put 20% down on the home purchase, or just 3% to 5%?

Overestimating these costs instead of potentially underestimating them can help you avoid being house poor. Or worse, missing out on your dream home entirely due to inaccurate estimates.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.

Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

October 23, 2024 by Brett Tams

When the housing market crashed in the early 2000s, new mortgage rules emerged to prevent a similar crisis in the future.

The Dodd-Frank Act gave us both the Ability-to-Repay Rule and the Qualified Mortgage Rule (ATR/QM Rule).

ATR requires creditors “to make a reasonable, good faith determination of a consumer’s ability to repay a residential mortgage loan according to its terms.”

While the QM rule affords lenders “certain protections from liability” if they originate loans that meet that definition.

If lenders make loans that don’t include risky features like interest-only, negative amortization, or balloon payments, they receive certain protections if the loans happen to go bad.

This led to most mortgages complying with the QM rule, and so-called non-QM loans with those outlawed features becoming much more fringe.

Another common feature in the early 2000s mortgage market that wasn’t outlawed, but became more restricted, was the prepayment penalty.

Given prepayment risk today, perhaps it could be reintroduced responsibly as an option to save homeowners money.

A Lot of Mortgages Used to Have Prepayment Penalties

In the early 2000s, it was very common to see a prepayment penalty attached to a home loan.

As the name suggests, homeowners were penalized if they paid off their loans ahead of schedule.

In the case of a hard prepay, they couldn’t refinance the mortgage or even sell the property during a certain timeframe, typically three years.

In the case of a soft prepay, they couldn’t refinance, but could openly sell whenever they wished without penalty.

This protected lenders from an early payoff, and ostensibly allowed them to offer a slightly lower mortgage rate to the consumer.

After all, there were some assurances that the borrower would likely keep the loan for a minimum period of time to avoid paying the penalty.

Speaking of, the penalty was often pretty steep, such as 80% of six months interest.

For example, a $400,000 loan amount with a 4.5% rate would result in about $9,000 in interest in six months, so 80% of that would be $7,200.

To avoid this steep penalty, homeowners would likely hang on to the loans until they were permitted to refinance/sell without incurring the charge.

The problem was prepays were often attached to adjustable-rate mortgages, some that adjusted as soon as six months after origination.

So you’d have a situation where a homeowner’s mortgage rate reset much higher and they were essentially stuck in the loan.

Long story short, lenders abused the prepayment penalty and made it a non-starter post-mortgage crisis.

New Rules for Prepayment Penalties

Today, it’s still possible for banks and mortgage lenders to attach prepayment penalties to mortgages, but there are strict rules in place.

As such, most lenders don’t bother applying them. First off, the loans must be Qualified Mortgages (QMs). So no risky features are permitted.

In addition, the loans must also be fixed-rate mortgages (no ARMs allowed) and they can’t be higher-priced loans (1.5 percentage points or more than the Average Prime Offer Rate).

The new rules also limit prepays to the first three years of the loan, and limits the fee to two percent of the outstanding balance prepaid during the first two years.

Or one percent of the outstanding balance prepaid during the third year of the loan.

Finally, the lender must also present the borrower with an alternative loan that doesn’t have a prepayment penalty so they can compare their options.

After all, if the difference were minimal, a consumer might not want that prepay attached to their loan to ensure maximum flexibility.

Simply put, this laundry list of rules has basically made prepayment penalties a thing of the past.

But now that mortgage rates have surged from their record lows, and could pull back a decent amount, an argument could be made to bring them back, in a responsible manner.

Could a Prepayment Penalty Save Borrowers Money Today?

Lately, mortgage rate spreads have been a big talking point because they’ve widened considerably.

Historically, they’ve hovered around 170 basis points above the 10-year bond yield. So if you wanted to track mortgage rates, you’d add the current 10-year yield plus 1.70%.

For example, today’s yield of around 4.20 added to 1.70% would equate to a 30-year fixed around 6%.

But because of recent volatility and uncertainty in the mortgage world, spreads are nearly 100 basis points (bps) higher.

In other words, that 6% rate might be closer to 7%, to account for things like mortgages being paid off early.

A lot of that comes down to prepayment risk, as seen in the chart above from Rick Palacios Jr., Director of Research at John Burns Consulting.

Long story short, a lot of homeowners (and lenders and MBS investors) expect rates to come down, despite being relatively high at the moment.

This means the mortgages originated today won’t last long and paying a premium for them doesn’t make sense if they get paid off months later.

To alleviate this concern, lenders could reintroduce prepayment penalties and lower their mortgage rates in the process. Perhaps that rate could be 6.5% instead of 7%.

In the end, a borrower would receive a lower interest rate and that would also reduce the likelihood of early repayment.

Both because of the penalty imposed and because they’d have a lower interest rate, making a refinance less likely unless rates dropped even further.

Of course, they’d need to be implemented responsibly, and perhaps only offered for the first year of the loan, maybe two, to avoid becoming traps for homeowners again.

But this could be one way to give lenders and MBS investors some assurances and borrowers a slightly better rate.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.

Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

October 21, 2024 by Brett Tams

If you’ve been paying attention, you may have noticed that mortgage rates have quietly crept back up to nearly 7%.

While it appeared that those 7% mortgage rates were a thing of the past, they seemed to return just as quickly as they disappeared.

For reference, the 30-year fixed averaged around 8% a year ago, before beginning its descent to nearly 6% in early September.

It appeared we were destined for 5% rates again, then the Fed rate cut happened. While the Fed itself didn’t “do anything,” their pivot coincided with some positive economic reports.

Combined with a “sell the news” event of the Fed cut itself, rates skyrocketed. However, now might be a good time to remind you that rates do tend to fall for a while after rate cuts begin.

Falling Rates Often Play Out Over Years, Not Months

As noted, the Fed pivoted, aka lowered its own fed funds rate, in September. They did so after increasing their rate 11 times during a period of tightening.

Hence the word “pivot,” as they switch from raising rates to lowering rates.

In short, the Fed determined monetary policy was sufficiently restrictive, and it was time to loosen things up. This tends to result in lower borrowing rates over time.

While many falsely assumed the pivot would lead to even lower mortgage rates overnight, those “in the know” knew those cuts were mostly already baked in, at least for now.

So when the Fed cut, mortgage rates actually drifted a little higher, though not by much. The real move higher post-cut came after a better-than-expected jobs report.

Lately, unemployment has taken center stage, and a strong labor report tends to point to a resilient economy, which in turn increases bond yields.

And since mortgage rates track the 10-year bond yield really well, we saw the 30-year fixed jump higher.

After nearly hitting the high-5s in early September, it completely reversed course and is now knocking on the 7% door again.

How is this possible? I thought the high rates were behind us. Well, as I wrote earlier this month, mortgage rates don’t move in a straight line up or down.

They can fall while they are rising, and climb when they are falling. For example, there were times when they moved down an entire percentage point during their ascent in 2022.

So why is it now surprising that they wouldn’t do the same thing when falling? It shouldn’t be if you zoom out a little, but most can’t stay the course and contain their emotions from dramatic moves like this.

It Can Take Three Years for Mortgage Rates to Move Lower After a Fed Pivot

WisdomTree Head of Equities Jeff Weniger crafted a really interesting chart recently that looked at how long mortgage rates tend to fall after the prime rate starts falling.

He graphed six instances when rates came down from 1981 through 2020 after prime was lowered. And each time, other than in 1981, it took at least two years for rates to hit their cycle bottom.

If we combine all those falling mortgage rate periods and use the average, it took 38 months for them to move from peak to trough.

In other words, more than three years for rates to hit their lowest point after an initial Fed cut.

As it stands now, we are only a month into the prime rate falling. But it’s important to note that rates had already fallen from around 8% a year ago.

They’ve now drifted back up to around 6.875%, and it’s unclear if they’ll continue to move higher before coming down again.

But the takeaway for me, in agreeing with Weniger, is that we remain in a falling rate environment.

Even if 30-year fixed rates hit 7% again, it’s lower highs over time as rates continue to descend.

Meaning we saw 8% in October, 7.5% in April, and perhaps we’ll see 7% this month. But that’s still a .50% lower rate each time.

The next stop could be 6.5% again, then 6%, then 5.5%. However, it won’t be a straight line down.

Still, it’s important to pay attention to the longer-term trend, instead of getting caught up in the day-to-day movement.

Mortgage Lenders Take Their Time Lowering Rates!

I’ve said this before and I’ll say it again for the umpteenth time.

Mortgage lenders will always take their sweet time lowering rates, but won’t hesitate at all when raising them.

From their perspective, it makes perfect sense. Why would they stick their neck out unnecessarily? Might as well slow play the lower rates if they’re not sure where they’ll go next.

As a lender, if you’re at all fearful rates will get worse, it’s best to price it in ahead of time to avoid getting caught out.

That’s likely what is happening now. Lenders are being defensive as usual and raising their rates in an uncertain economic environment.

If and when they see softer economic data and/or higher unemployment numbers, they’ll begin lowering rates again.

But they’ll never be in any rush to do so. Conversely, even a single positive economic report, such as the jobs report that got us into this situation, will be enough for them to raise rates.

In other words, we might need multiple soft economic reports to see mortgage rates move meaningfully lower, but just one for them to bounce higher.

So if you’re waiting for lower mortgage rates, be patient. They’ll likely come, just not as quickly as you’d expect.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.

Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com