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Buying a home is a big deal, both emotionally and financially. For many people, homeownership is still an essential part of the American dream. And, of course, it’s the biggest investment some will ever make. With the median price of a house hitting $428,700 in mid-2022 (ka-ching), it’s not a purchase to be made lightly.

If you’re buying a home for the first time, you may expect it to be the same as those quick, fun-and-done experiences portrayed on reality TV shows. In truth, however, it’s a process with a steep learning curve and many moving parts, from figuring out your home-shopping budget to satisfying your final mortgage contingencies. There can be minor hiccups as well as major missteps along the way.

That’s where this article comes in. It will educate you about the six most common first-time homebuyer mistakes and help you avoid them, including:

•   Not knowing how much house you can afford

•   Not shopping around for the best mortgage rate

•   Waiving an inspection because you’ve found your dream house.

First-Time Homebuyer Mistakes to Avoid

You’ve new to this homebuying business, so it’s worthwhile to educate yourself a bit about a few of the key moves to make the process go smoothly. Here, we’ll highlight the steps required for first-time homebuyers and help you avoid some common mistakes when buying a house.

1. Not Getting Your Mortgage Paperwork Moving

Before you start browsing online listings or get your heart set on a certain neighborhood, it might be a good idea to contact a lender (or, better yet, lenders) to show sellers that you are loan-worthy. If you don’t get your mortgage pre-qualification or even a pre-approval started, you’re unlikely to impress sellers as a serious bidder worth their consideration. You might just look like a person who enjoys poking around open houses for design ideas.

Nip that in the bud as follows:

•   Pre-qualification: You’ll provide basic information about your debt, income, assets, etc., and they will run a credit check and can give you an idea of how much you can borrow.

•   They will also share information on different types of loans — such as fixed-rate vs. variable-rate and 30-year vs. 15-year term — so you can see what best suits your financial situation and goals.

Remember, though: Mortgage pre-qualification isn’t a commitment for the lender or buyer — it’s just a first step. If you appear to meet a lender’s standards, you could move on to the pre-approval stage.

•   Pre-approval: This involves submitting additional income and asset documentation for a more in-depth review of your finances.

•   Once the lender approves these aspects of your loan application, you’ll receive a conditional commitment for a designated loan amount — called a pre-approval letter — and have a better idea of what your loan terms will be.

•   Mortgage pre-approval can help demonstrate to sellers that you’ve completed the first step in getting a mortgage because your credit, income, and assets have already been reviewed by an underwriter. This can smooth the bidding process and could give you an edge over others in a competitive situation with multiple offers.

2. Not Checking Out First-Time Homebuyer Programs

It’s wise to shop around for a few different mortgage quotes, but it can be a rookie mistake to overlook some great, government-sponsored programs that make homebuying more affordable. These include:

•   insurance (PMI), along with lower closing costs and a low interest rate.

•   FHA Loans : These mortgages are designed for those with low to moderate incomes. They typically offer low down-payment requirements, low interest rates, and the ability to get approval even if you have a fair credit score.

•   USDA Loans : These provide affordable mortgages to those with a lower income who are planning on buying a home in a qualifying rural area.

•   VA Loans : These mortgages help those on active military duty, veterans, and eligible surviving spouses become homeowners. If you can check one of those boxes, you may be eligible for a home loan with no down payment and no private mortgage.

3. Not Being Realistic About What You Can Afford

Once you know more about your mortgage pre-qualification, you can avoid the homebuying mistake of not knowing your home buying budget. The lender you choose will tell you the maximum amount you’re approved to borrow for a home, but you don’t have to use every penny of that money.

It’s important to keep other factors in mind as you determine the top price you’ll pay for your first home. If you don’t have your pricing guardrails in place, you could wind up overbidding and winding up with a too tight budget. Here, some ways set your sights realistically:

•   Ask yourself if your projected mortgage payment will fit comfortably into your monthly budget. You may have to make some tradeoffs — less travel, shopping, or dining out — if your new payment is higher than your current rent or loan payment, which you can figure out with a mortgage calculator.

•   Keep in mind that your mortgage probably isn’t the only new expense you’ll have to cover. If you’re buying a bigger place than your current rental, you will likely pay more for utilities. If the home has a lawn or pool, you might have to maintain them or pay someone else to do it. Or you may have a homeowner association (HOA) fee. Add those costs, gleaned from online sources and/or open houses, to your projected monthly budget (you can make a budget in Excel, use paper and pencil, or work with an app).

•   You’ll also have to account for the cost of homeowner’s insurance and paying your property taxes. You can get some idea of what those costs will be by searching online. There are insurance calculators, and most home listings give you the annual property taxes.

By doing the math, you’ll make sure you are ready to keep up with the monthly flow of expenses without dipping into savings or taking on credit card debt.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

4. Digging Too Deep for a Down Payment

In their eagerness to become homeowners, many first-time buyers make the mistake of going overboard and directing every bit of money they have to the purchase.

If you have to drain your emergency savings to manage the down payment on a home, you might want to dial down the amount or wait and save up a bit more. Consider what could happen if the home needs a costly repair or, worse, if you or someone in your family suddenly has an expensive medical bill. That’s a good example of when to use an emergency fund.

The same thing holds for taking money from your retirement savings. The IRS allows first-time homebuyers (which the IRS defines as not owning a primary residence in the past two years) to withdraw money from an IRA penalty-free . But this is capped at $10,000, and you’ll still pay federal and state income taxes on the money — and lose out on the growth you’d possibly have if you left those funds alone.

If you have a 401(k), you could take a loan against those funds, but again, there are consequences. There may be a provision in your plan that prohibits you from making additional contributions until the loan balance is repaid, so you’ll miss out on any growth, and you may be required to pay back the loan immediately if you quit or lose your job. If that happens, the money you borrowed will become fully taxable and may be subject to a 10% early withdrawal penalty.

There are benefits to putting 20% down on a home: You’ll avoid paying private mortgage insurance (PMI) and your monthly payments will be lower. But 20% isn’t required. For example, the minimum down payment required for a conventional loan is 3%, and for an FHA loan, it’s 3.5%. According to the National Association of Realtors, first-time buyers typically put down 7% of a home’s price in 2021.

With all the other costs you could be looking at as you move into a home — closing costs, utility deposits, moving expenses, decorating, and more — your down payment amount is something to consider if you want to avoid getting in over your head.

5. Passing on a Full Inspection

It may be tempting to waive the home inspection when you’re trying to buy the home of your dreams — especially if you have some stiff competition to be the winning bidder for an in-demand property.

Sorry to say, this is a risky strategy. A home inspection might reveal critical information about the condition of a home and its systems, from electrical problems to hidden mold; from a failing septic system to a leaky roof. What you learn in an inspection could reveal that your dream home is actually a money pit.

What’s more, your inspection report might serve as a useful negotiating tool: You could use it to ask for repairs or to work out a better price from the seller. And if you really aren’t happy with the inspection results, you may be able to use it to cancel the offer to buy.

💡 Recommended: 7 Important Factors That Affect Property Value

6. Letting Your Emotions Get The Better of You

Homebuying can be a roller coaster, so it’s important to prepare yourself psychologically as well as financially. If you’ve ever talked to someone buying a house, you know there are potential pitfalls all through the purchasing process.

You might fall in love with the perfect house and find it’s way over your budget. You might get annoyed with the sellers or their Realtor, especially during the negotiation process. You might disagree with your spouse or a co-buyer about priorities.

All of these scenarios can cause a person to behave emotionally. It might make you want to walk away from a great deal. It might lead you to barrel ahead with a purchase, even when warning lights are flashing.

How to avoid such mistakes when buying a house? By recognizing that this will be a challenging and at times stressful process (especially because you are new to it), you can proceed more calmly. Find tools that help you move ahead with patience and a sense of calm, best as you can. With your eye on the prize — namely, your first home — you’ll get there.

💡 Recommended: 31 Ways to Save for a Home

The Takeaway

Buying a home for the first time is an exciting moment, but one that takes some time and care to make sure you avoid rookie mistakes. You’ll want to do due diligence, not skip steps, or get carried away by emotion.

When you’re ready to line up your financing, the loan terms you get could be nearly as significant as your home’s location in terms of long-term satisfaction.

When shopping for a mortgage, you may want to compare different interest rates, the length of the loan, and other factors that make one lender a better fit than another.

With a SoFi mortgage loan, for example, the pre-qualification process is super simple, and our loans have competitive rates. What’s more, qualifying first-time homebuyers can put down as little as 3%, and work with our Mortgage Loan Officers who can coach you through the required steps.

If you’re thinking about buying a home, see what a SoFi mortgage could do for you.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Source: sofi.com

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We may have seen the bottom in the average 30-year fixed mortgage rate, at least for the next few weeks, said Freddie Mac Chief Economist Sam Khater in a report on Thursday that showed mortgage rates rising 2 basis points to 2.93% this week.

A rise in the yields on 10-year Treasuries, which serve as a benchmark for investors in mortgage-backed securities, will make it difficult for mortgage rates to move lower in the short-term, Khater said. In the first week of August, the 30-year average rate fell to an all-time low of 2.88%, according to Freddie Mac data.

In recent weeks, the “spread,” meaning the difference between mortgage rates and 10-year Treasury yields, have narrowed, but Khater said that isn’t likely to be enough to overcome the rise in the so-called long bond  – at least, in the short term.

“Spreads may decline even further but the rise in Treasury rates will make it difficult for mortgage rates to fall much more over the next few weeks,” Khater said.

While the 30-year rate rose, the less-popular 15-year average fixed rate set a new low at 2.42%. That’s down from 2.46% last week and breaks the record low of 2.44% set in the first week of August.

Despite this week’s bump in the 30-year average rate, the long-term trend shows it heading down through next year, according to a Fannie Mae forecast last month.

The average 30-year rate probably will be 2.7% next year, down from 3.1% in 2020. Both would be record lows.

Low rates likely will boost mortgage lending to $3.4 trillion this year, which would be the highest since 2003, the Fannie Mae forecast said.

That would be a $1 trillion increase over last year.

Source: housingwire.com

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During the early 2000s, you didn’t need to prove much to qualify for a mortgage.

In fact, it got to a point where it was kind of rare to provide “full documentation” when applying for a mortgage.

The most common doc type at that time was stated income, where a borrower would simply write in their monthly income on the loan application form, without the need for tax returns or pay stubs to back it up.

This was designed for the self-employed and others with complicated financials that didn’t want to provide hundreds of pages of documentation to get the deal done.

These types of loans became extremely popular when home prices surged in value and mortgage payments were no longer manageable for some borrowers.

In order to comply with DTI limits, borrowers simply stated their income and moved on.

Unfortunately, this eventually led to the advent of no doc lending, which didn’t require income, asset, or employment documentation. Instead, it simply required a credit report to determine eligibility.

That Was Then, This Is Now

Today, it’s quite the opposite. Because of the obvious missteps made during the housing run-up, lenders now require all types of documentation to get the deal done.

Most borrowers now need to provide two years of tax returns and two months of bank statements, along with countless disclosures that seem to be growing in number year after year.

In fact, the paperwork situation has gotten so bad that the average mortgage application file now contains some 500 pages, according to Mortgage Bankers Association (MBA) CEO David Stevens.

Included in that estimate are the tax returns, which can easily be 100 pages, along with disclosures, which can total 50 or more pages.

Then there’s the credit report and the asset documentation, the latter of which can be quite extensive depending on how many accounts are submitted to the lender.

And once those accounts are verified, the underwriter might ask for sourcing of funds, or LOEs (Letters of Explanation) for anything unusual.

Along with all that there’s the home appraisal, natural hazard disclosure, title and escrow documents, purchase contract (if applicable), insurance documents, closing documents, and much more.

How You Can Reduce the Paperwork

At the end of the day, you’re not buying a microwave, you’re buying a house, and so the documentation is going to be great no matter how you slice it.

But there are ways you can reduce the load. The best way is to get all your ducks in a row before you even apply for a mortgage.

Yes, disclosures will need to be signed, and reports will need to be ordered. But you can cut down on the amount of paperwork by keeping things clear for the underwriter.

Run your credit a few months before you apply for a mortgage. If there are unwanted surprises, clear them up before the lender pulls your credit.

And don’t apply for any new credit before or during the loan process. That could be grounds for more paperwork and/or flat-out denial.

The same goes for your bank accounts and other assets. Don’t move money around or it’ll just beg for an explanation, aka paperwork.

The cleaner your original loan file, the less you’ll be asked to provide once the underwriter lays eyes on it.

Put simply, be boring and normal. Anything perceived as out of the ordinary will be scrutinized. And you’ll be faxing and scanning documents until the cows come home.

Also remember to provide all pages when asked to submit statements and other documents. Failure to do so will require the re-sending of documents until you get it right.

Finally, create a folder on your computer and label and organize all your loan documents so they can be re-sent to the lender if necessary. Things do get lost in the shuffle, so it’s best to have everything in one convenient place if it’s needed once more.

(photo: Caitlin Childs)

Source: thetruthaboutmortgage.com

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When embarking on the exciting journey of buying a new home in Washington, there’s a crucial step that should never be overlooked: the home inspection. A home inspection is a complete assessment of a house’s condition. Whether you’re buying a house in Tacoma or hunting for homes in Spokane, a thorough inspection can mean the difference between a smooth transition into your dream home and unexpected post-purchase challenges. That’s why we reached out to Washington home inspectors to get their best insights. Here’s what they had to say.

Why should you get a home inspection in Washington?

“Every home has its quirks, but some are more consequential than others,” says Isaac McPhee of Strong Foundations Home Inspection. “In any real estate transaction, one of the most important questions is whether the home has any hidden surprises waiting to cost the buyer (or seller) significant amounts of money. Home inspections exist to shine light on the home’s true condition, to limit potential surprises, and to provide peace of mind. As inspectors, we exist to provide peace of mind, and it’s hard to put a price on that.”

Homeowners often overlook seemingly minor cracks and defects. According to Matt Johnson of INW Home Inspection, an experienced home inspector will investigate these further. He adds that around 5% of the time, what may seem like a minor problem, reveals a structural issue. 

“A home inspection is the best way to ensure that you have all the information you need to make an informed decision on your prospective home,” says Hunter Taylor of Centurion Home Inspection.

Are there any specialized inspections that Washington buyers should consider?

While a standard home inspection is typically advised for all homebuyers, prudent purchasers take extra care by arranging for specialized home inspections, particularly for older properties or those with unique attributes. Covering everything from the roof to the foundation, there are a variety of specialized inspections worth considering before finalizing your home purchase.

“A thorough home inspection including an infrared scan of the critical areas is essential to understanding the condition of the home you are investing in,” says Gregg Spear of Spear Home Inspection Inc. “Adding a sewer scope can help identify unknown defects in the building sewer line that could become a future problem for you.” 

In addition, Gal Zamir of AirGanic recommends getting your insulation inspected. “We highly recommend having a dedicated inspection for Insulation levels throughout the crawl space and Attic and a detailed HVAC system inspection, this will allow you to have a full understanding of your potential home energy consumption and Indoor air quality levels.”

“Consider requesting a separate sewer scope during your home inspection, as it’s not usually included,” says Carmin Dalziel of Dirt Cheap Sewer. “Overlooking sewer problems could lead to significant post-purchase costs. Opting for a camera scope of the sewer system helps you make well-informed decisions before buying.”

Lindsey Smith of Top Notch Home Inspection says that you should choose an inspector with a structural pest inspection license. “Given the state’s climate and potential pest challenges, this license ensures that the inspector is qualified to identify and address any pest-related issues alongside general structural concerns,” Smith says. “This dual expertise will provide you with a comprehensive assessment of the property’s condition, aiding your decision-making process and potentially preventing future financial burdens.”

Are home inspections required in Washington?

In Washington, home inspections are not legally required by the state for the sale of a property. However, they are highly recommended and often considered a prudent step in the home buying process. A thorough inspection can uncover potential issues that might not be evident during a casual walkthrough, helping buyers make informed decisions about the condition of the property.

How much does a home inspection cost in Washington?

The cost of a home inspection in Washington can vary based on factors such as the size of the property, its location, and the specific services offered by the inspector. On average, home inspection costs in Washington typically range from around $200 to $600. It’s important to remember that while cost is a factor, the quality and thoroughness of the inspection are equally important considerations.

Can you sell a house in Washington without an inspection?

Yes, you can sell a house in Washington without a formal inspection being legally mandated. However, it’s worth noting that many buyers in the state often request or expect an inspection as part of the due diligence process. Opting for a pre-sale inspection before listing your home can provide you with a better understanding of its condition, potentially allowing you to address any issues upfront and present the property in a more favorable light to potential buyers.

Tips for getting a home inspection in Washington 

“Before a home inspection, it’s essential to invest time in researching reputable and experienced inspectors,” says Liberty Inspection Services. “Check reviews, seek recommendations, and confirm their licensing and certification. Understand that an inspector evaluates visible areas, but hidden issues might demand additional investigation. If feasible, join the inspection to directly comprehend the property’s state and potential concerns.”

Andy Sanchez from Inspect NW says to always make sure your inspector is licensed. “The WA State Dept of Licensing has Standards of Practice set forth for licensed home inspectors. These are guidelines that basically state what inspectors are required to inspect. Also, make sure you attend the inspection if you can. This allows the inspector the opportunity to convey their findings in a manner that you will be able to understand when you are reading the final report. Also, ask questions; if you think of anything concerning to you prior to the inspection write it down.”

“Using a home inspector referred by your broker can present a potential conflict of interest,” says Lawrence Karwoski of Advanced Inspection Services Inc. “While your broker may have good intentions, it’s important to remember that their primary goal is to close the deal, which might influence their recommendation as they typically have experienced many inspectors. To ensure an unbiased inspection and accurate assessment of the property’s condition, it’s generally recommended to find and hire your own independent home inspector. This way, you can be more confident that the inspection report will be impartial and thorough, without any potential pressures or biases that might arise from using a recommended inspector.”

Washington home inspections: the bottom line

Buying a home is a major decision. Before you commit to purchasing your dream home, taking the step to have a thorough Maryland home inspection can provide invaluable peace of mind. By identifying potential issues and ensuring the property’s condition aligns with your expectations, this inspection adds an extra layer of confidence to your investment.

Source: redfin.com

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The two most hyped technologies in recent years – blockchain and artificial intelligence – may solve for each other’s greatest drawbacks.

Blockchain technology, which in layman’s terms is a registry of data or transactions, could be the answer to how different industries, including home finance, track and keep records of its machine learning or AI decisioning. The possibilities of how the two technologies can mesh with one another is being actively discussed in technology circles, especially in the financial sector, industry stakeholders say. 

Some predict fairly soon technology companies using AI will look to the online ledger to outline their methodologies and data usage, creating “snapshots of data” visible to those with access. 

This pairing is now getting attention because “in the last two to three months, the whole discussion has shifted towards transparency, especially because of ChatGPT,” said Subodha Kumar, professor of data science at Temple University.

Grouping the technologies could answer the top-of-mind question of how to make the actions of AI more explainable by potentially opening up the “black box,” about which the Consumer Financial Protection Bureau has issued several warnings.

“Companies must take responsibility for the use of these tools,” CFPB director Rohit Chopra said in an interagency statement co-released with the Civil Rights Division of the Department of Justice, Federal Trade Commission and the Equal Employment Opportunity Commission in April. “Unchecked AI poses threats to fairness and our civil rights.”

But blockchain is not a panacea. Industry experts warn that the tech will not solve ethical concerns around machine learning and AI.

Technologists in the mortgage industry point out the inherent compatibility of blockchain and AI make them destined to come together, sooner rather than later.

Both have positives that can complement one another, said Prabhakar Bhogaraju [PB], the vice president of financial fitness app Finlocker.

“AI’s strength is finding abnormal patterns of what [may at first] look like normal data and it does this by recognition,” said PB. “Blockchain on the other hand has some strengths on data provenance, data lineage and absolute control on data, which itself is immutable.” 

He noted that “AI can help in optimizing how blockchain resources themselves are used [and] blockchain can help AI in providing more traceability of the data sets on the model iterations themselves.”

“But that’s still, in my opinion, very early stage matchmaking,” PB added.

Being able to view what is saved on blockchain, with the proper approval, can also be the key to battling fraud, industry stakeholders say.

“If it’s your IP nobody can touch it or change it and any variant of your IP will actually look like a variant 100% of the time,” said PB. “So blockchain can help fill one of the gaps that AI has, which is this deep-fake kind of problem.”

Blockchain could be effective for ensuring security in the property valuation space, Leah Price, co-chair of MISMO’s Emerging Technology community and independent advisor to fintechs, predicts.

“With the proliferation of deep fakes, how is anyone able to tell what is true?” Price said. “If you think of a property valuation and there are photos of a property, how exactly do you know that the photos haven’t been manipulated? It’s very easy to get a photo of a house and cover up potential problem areas.”

“But with an appraisal, you could put a hash and a timestamp on the photos, the data and documents to make sure that they’re authentic and haven’t been altered,” she added. “Blockchain has been designed in a way that you can always tell what’s true and authentic.”

The ledger technology may also have an impact on disclosures of what data AI systems are analyzing and relying on to make their lending decisions. 

Per Subodha, participants on the blockchain “can see how the data collection has been transformed.” 

“When a system is built out on the blockchain it allows different people to share information like who is putting something in and why and these types of things can be checked when somebody’s trying to mess with the system,” he said.

“People can see what the data [used to build a system] actually looked like and [from that] people can see the data itself was biased and some correction can be made based on that,” Subodha added.

The transparency provided by the blockchain can potentially allow permissioned industry participants to see what went into the underwriting of a loan, added Price.

“You could take all the inputs, you can have hashes on them and as a loan is originated, that data can be put on the chain,” Price said. “As the loan is sold into the secondary market, various participants would have access to that loan and see that a borrower’s credit report is authentic and that their income report is authentic, so that’s the kind of transparency that a blockchain would bring.”

But before blockchain and AI come together, some kinks need ironing out.

For example, when you create a see-through box, where all of your data is accessible to a third party, you also amplify the risk of fraud, technologists interviewed say.

“Blockchain helps you in creating more security, but at the same time, the blockchain also creates transparency, but with more transparency there is a chance people can misuse the data,” said Subodha. “So that’s going to be a very interesting challenge going forward for the financial industry…” 

Apart from potential fraud scenarios, being more open with data usage and how a company builds its internal code can also reveal a company’s well-guarded trade secrets, which could be a barrier for implementation in the financial sector, some warn.

Brett Brumley, CEO of Lender Toolkit, noted that if the two technologies come together “there needs to be a delicate balance between transparency and protecting a company’s proprietary information.” 

“Disclosing the exact coded variables could reveal too much about how the system works and remove competitive advantages,” said Brumley. “At the same time, too much information could actually put mortgages at risk. If you post too much information to a blockchain, you can actually make investors very nervous by sharing normal changes that are expected in the manufacturing process of a loan.”

Last but not least – though not necessarily a barrier – blockchain will not solve the problem of bias, which Rohit Chopra, director of the CFPB warns “poses threats to fairness and our civil rights.”

“Blockchain in itself is not going to make the data better or algorithms better,” said Subodha. “It cannot and does not have the capability to do that, but it creates more transparency, and more involvement of people can magnify the understanding of results.”

Going forward, the ledger technology will not be the only tool used by the financial sector to disclose their use of AI. It is believed regulators will roll out guidelines in the near future.

“[It is uncertain whether] every AI will require a blockchain kind of solution, or model provenance, but I do think blockchain definitely should be a part of the solution kit,” PB said. “One of the business constraints in these two technologies moving faster than they are is we don’t have the right regulatory governance yet.” 

Source: nationalmortgagenews.com

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Apache is functioning normally

Is the housing shortage merely awful, or jaw-droppingly catastrophic? Depends on who you ask. The Harvard Joint Center for Housing Studies estimates that there’s a deficit of 1.5 million dwellings. Realtor.com says that we’re 2.3 million units short. Zillow says it’s 4.3 million, and the National Association of Realtors (NAR) guesses we’re shy 5 million to 6 million homes.

The Biden administration recently announced several programs to goose the construction of affordable housing. The efforts won’t situate everyone into a decent place that they can afford to rent or buy. But over the next few years, the programs could ease housing burdens for hundreds and maybe thousands of households.

The problem is that the federal government is engaging the situation with a polite nudge when true progress requires a rude shove. If Congress would increase funding and the White House would apply more imagination, the impact could be bigger.

Two main causes for the housing shortage

In five years, the median resale price of an existing home went up 51%, to $406,700 in July 2023, according to the NAR. Prices are too high for many would-be buyers. In early 2022, Freddie Mac polled Gen Z adults (ages 18 to 25 at the time), and 34% of them agreed that “homeownership at any point seems out of reach financially.” Mortgage rates have zoomed since that poll was conducted, making homes even more unaffordable.

Housing experts blame the shortage of low-cost housing on two primary factors: the cost of land and the expense of borrowing money to build. High lumber prices and a scarcity of construction workers are problems, too, but land costs and financing are the biggies that the Biden Housing Supply Action Plan addresses.

It’s expensive to develop and build

When builders talk of land costs, they mean more than the price of vacant acreage. They also refer to costs imposed by local governments: impact fees, zoning rules that limit the size and spacing of new homes, and wasted time while projects are delayed by legal challenges and political opposition.

It’s often a long, costly slog to get approval for housing, especially for dwellings for low-income households, apartments and other multifamily units. As the Harvard Joint Center puts it in its 2023 report on the nation’s housing: “The national housing shortage is also the product of local restrictive zoning policies and other regulatory barriers that make it difficult to build a range of housing types at different price points.”

Cities overwhelmingly zone land for single-family houses, effectively banning duplexes and apartments. Minimum lot sizes mean builders can construct only so many houses on a block, so they build expensive homes to maximize profits.

“Considering everything, they are saying, ‘Well, only way to make the numbers work, we are focusing on this larger-size home,'” the NAR’s chief economist, Lawrence Yun, said in a C-SPAN interview in early August.

Feds need to be firmer with local governments

Elected local leaders set the rules that drive up the cost of housing in communities blue and red. Several states, from California to Connecticut and Montana to Maine, have responded by restricting local governments’ land-use powers in order to promote multifamily and affordable housing.

Some housing advocates think the federal government should step in and compel local governments to make room for less expensive housing, such as apartments. In a March 2021 paper, Overcoming the Nation’s Daunting Housing Supply Shortage, Jim Parrott of the Urban Institute and Mark Zandi of Moody’s Analytics wrote that “federal policymakers should push communities to reorganize their approach to development from the ground up.”

The Biden administration adopted this approach. Its flagship program, Pathways to Removing Obstacles to Housing, dangles an $85 million pot of money. Local governments can receive grants from it to implement reforms that allow for denser housing, to plan transit-oriented development, to streamline permitting and to address gaps in financing, among other things.

It’s a well-meaning effort, with two problems: It lacks bite and it’s stingy. (The administration requested $10 billion and Congress appropriated $85 million.)

“It’s a nice idea, but, you know, we need some stick with the carrot,” says David Dworkin, president and CEO of the National Housing Conference. He means that the effort would be more effective if the federal government would withhold money from cities that refuse to relax zoning. Such an approach worked in the 1980s, when the feds threatened to deny highway funding to states that refused to raise the drinking age to 21. That was a shove, not a nudge — and it worked.

Playing hardball might yield results with housing, Dworkin says. “This is about having apartment buildings in communities, and duplexes or quadplexes, and the failure of communities to address the political pressure of residents who say, ‘I’ve got mine, no one else gets theirs,'” he says.

A miserly response to an expensive problem

As for the amount of money that Congress approved: In their paper, Parrott and Zandi imagined a federal program that would hand out $50 billion per year for 10 years to cities that “ease regulations and other building restrictions.” The generous program would increase affordable housing by 275,000 units per year, they estimated.

If $50 billion per year for 10 years would help solve the affordable housing shortage, the $85 million Pathways to Removing Obstacles to Housing program is laughably small. It’s as if Parrott and Zandi presented a $500 repair estimate, and Congress fished three quarters and a dime out of its pocket. If $50 billion in funding would result in 275,000 affordable homes, as Parrott and Zandi estimate, then $85 million would be good for 468 affordable homes.

The Department of Housing and Urban Development (HUD) said it will ask Congress for more funding.

Other programs address the housing shortage indirectly. The Department of Transportation will chip in money to local governments that extend public transportation to and from affordable housing, partly through zoning reform. The Commerce Department, when handing out Economic Development Administration grants, will favor development projects that allow people to live closer to work.

Making borrowing easier for developers

The other major way to stimulate the construction of affordable apartments is by making it easier and faster for builders to borrow money to fund their projects. HUD has come up with two solutions.

First, it has increased the threshold of what constitutes a “large loan” to build or rehabilitate apartments. The increase from $75 million to $120 million will reduce paperwork and costs to build or rehab large apartment complexes.

Second, HUD removed a $25 million cap on the size of FHA-insured loans on apartment construction that uses a streamlined Low-Income Housing Tax Credit (LIHTC). This means more apartment complexes will be eligible for the LIHTC, which reduces investors’ tax bills.

These tactics — loosening the purse strings to boost apartment building — might hasten construction for projects that have already won approval. But in the long term, this country can’t solve its housing shortage if cities and towns continue to use regulations to restrict new construction. If paying them to cut red tape doesn’t work, then state and local governments might have to withhold funding.

Source: nerdwallet.com

Apache is functioning normally

While mortgage delinquencies inevitably continue to rise, foreclosure starts in relation to those figures have fallen, according to the FHFA September Foreclosure Prevention Report released today.

The report, which covers Fannie Mae and Freddie Mac’s 30.7 million residential mortgages, revealed that loans 60+ days delinquent (including those in BK and foreclosure) increased to 2.21 percent of the total portfolio as of the end of the third quarter.

That figure is up from 1.46 percent as of the end of the first quarter and 1.73 percent as of June 30.

Despite the rise in borrowers falling behind on their mortgage payments, foreclosure starts as a percent of loans 60+ days delinquent fell from 8.29 percent in the first quarter to 7.12 percent in the third quarter.

And loans for which foreclosure was completed stabilized at 2.55 percent between the second and third quarter after rising from 2.41 percent in the first quarter.

Fannie Mae’s Homesaver Advance Making Numbers Look Pretty?

However, loan modifications completed fell from 15,372 in the second quarter to just 13,450 in the third quarter, though loans reinstated via Fannie’s Homesaver Advance program skyrocketed, and accounted for 45 percent of all loss mitigation activity.

But it’s unclear whether an unsecured personal loan extended to an ailing borrower to temporarily cure a first lien loan will be enough to head off foreclosures over the long haul.

The number of more favorable (grain of salt) loan modifications completed in the third quarter have actually fallen from both the first and second quarter, and averaged just over 4,000 a month in the latest quarter.

Meanwhile, completed foreclosure sales averaged more than 15,500 a month in the third quarter, up about 5,000 per month from earlier this year.

So unless Homesaver Advance sees some serious long-term success, these seemingly optimistic numbers are nothing more than a false calm before a very real storm.

And the numbers look to get even more muddled thanks to the foreclosure moratorium imposed by the pair over the holidays.

Source: thetruthaboutmortgage.com

Apache is functioning normally

Average U.S. mortgage rates for a 30-year fixed loan fell to 2.91% this week, the second-lowest level on record, Freddie Mac said in a report on Thursday.

The rate declined from 2.99% last week, the mortgage financier said. The average rate for a 15-year fixed home loan fell to 2.46% from 2.54%.

“This year has been anything but normal and as the uncertainty lingers, mortgage rates remain near record lows,” said Sam Khater, Freddie Mac’s chief economist. “These rates continue to incentivize potential buyers and the home-buying season, which shifted from spring to summer, will likely continue into the fall.”

Existing-home sales jumped 25% in July from June. That beat the prior record gain of 21% set a month earlier, as low mortgage rates fueled demand for real estate purchases, the National Association of Realtors said in a report on Friday.

Seasonally-adjusted sales of single-family homes, townhomes, condominiums, and co-ops rose to an annualized pace of 5.86 million in July, the highest level since 2006, the report said. The median price increased 8.5% from a year ago to $304,100, breaking through the $300,000 threshold for the first time.

The longterm trend is for financing costs to head even lower, Fannie Mae said in its latest forecast. The average U.S. annual rate for a 30-year fixed mortgage probably will fall to 2.7% next year from 3.1% in 2020, the forecast said. Both would be record lows.

That projection is based on an expectation that so-called primary mortgage spread – meaning the difference between the 10-year Treasury yield and the 30-year fixed rate – will narrow, Fannie Mae said.

The spread, sometimes called the margin, was 2.32% last week, down from April’s peak of 2.72%. It was the highest spread since the financial crisis more than a decade ago. Last year, the average spread was 1.80%.

That margin “has remained elevated compared to historical norms, likely due to continued lender volume constraints, though these appear to be diminishing,” Fannie Mae said.

Source: housingwire.com