The recent drop in the high cost conforming jumbo loan limit has hurt home sales in higher-priced areas of the country, according to data from the National Association of Realtors.
The latest existing-home sales report revealed that transactions under $400,000 were off just three percent from a year ago, while homes priced at or above $750,000 have declined a startling 47 percent.
“Buyers in higher price ranges are at a severe disadvantage because they have to pay higher interest rates,” said NAR chief economist Lawrence Yun.
“Lower loan limits are having a pronounced impact on trade-up activity at the upper end of the market, which depends more on large downpayments to keep mortgage amounts below the maximums for conventional financing.”
NAR noted that mortgages without government backing, such as jumbo loans, are coming at a cost of nearly two percentage points higher than conventional financing, putting the high-end market at a standstill.
And while a $750,000 price tag seems high, many metropolitan areas throughout the country have plenty of inventory at this pricing threshold, making it difficult for both those looking to refinance and those interested in buying.
“Lower mortgage limits for conventional loans mean upper middle-class home buyers in much of the country, including many areas in the Midwest and South, also have to pay higher interest rates,” Yun added.
Fortunately, new legislation is reportedly in the works to raise the conforming jumbo limit back to levels seen last year, which should spell some relief for these homeowners and potential buyers.
“Every segment of the housing market needs a turnaround to spark an overall housing recovery, which will help the economy to begin to recover,” said NAR president Charles McMillan.
The average U.S. mortgage rate for a 30-year fixed loan is 2.87% this week, dropping one basis point from last week’s 2.88%, Freddie Mac said in a report on Thursday. The rate is now one basis point from an all-time low set in mid-September.
The average fixed rate for a 15-year mortgage was 2.37%, rising one basis point from last week’s 2.36%, the mortgage securitizer said.
Mortgage rates that have stayed below 3% for 11 consecutive weeks have boosted housing demand, acting as a counter-weight for an economy that is struggling amid the worst public health crisis in more than a century.
“With near-record-low rates, buyer demand remains robust with strong first-time buyers coming into the market,” said Sam Khater, Freddie Mac’s chief economist. “The demand is particularly strong in more affordable regions of the country such as the Midwest, where home prices are accelerating at the highest rates over the last two decades.”
Sales of existing homes rose to a 14-year high of six million at an annualized pace in August, the National Association of Realtors said in a report last month.
Combined sales of single-family houses, townhomes, condominiums and cooperatively owned apartments rose 2.4% from July, according to the report. Compared to a year ago, prior to the COVID-19 pandemic, August’s sales were 11% higher, NAR said.
“The buyers are coming in because of the low interest rates – that’s the number 1 reason,” said Lawrence Yun, NAR’s chief economist.
The low rates are also putting upward pressure on home prices, because cheaper financing typically means borrowers qualify for bigger mortgages and can bid higher for properties they want. The median existing-home price in August was $310,600, up 11.4%, and prices rose in every region, NAR said.
The boost in demand that comes from the low rates have worsened an inventory shortage that plagued the market long before the pandemic hit the U.S.
The number of homes on the market at the end of August totaled 1.49 million, down 18.6% year-over-year, the NAR report said.
Unsold inventory measured as a “months supply” number that gauges how long it would take to sell all the homes if nothing else came on the market, was three months, NAR said. That’s down from 3.1 months in July and compared with four months a year ago.
Update: Carrington Mortgage Services now allows FICO scores as low as 500 for both FHA loans and VA loans, which is the minimum credit score for an FHA loan.
Recently, there has been plenty of moaning and groaning about the mortgage “credit box” being too tight.
In a nutshell, banks and lenders have been accused of becoming too conservative, making it difficult for less creditworthy borrowers to obtain financing.
But as home loan lending volume continues to plummet, the obvious “solution” is to expand offerings, namely, by easing guidelines. That, after all, is the easiest way to increase your customer base in the mortgage biz.
Carrington Plans to Serve the Underserved with Brokers
For all intents and purposes, a 550 FICO score is pretty abysmal. In order for your credit score to sink that low you must have done something seriously wrong.
Typically, it means missing a payment or three, whether just a credit card payment or a more major offense, such as a mortgage payment.
Regardless, Santa Ana, CA-based Carrington Mortgage announced today that it would now accept FHA loan applicants with FICO scores as low as 550, down from their prior floor of 580.
Perhaps there isn’t too much of a difference between a 550 and 580 score, but it’s still telling about the direction the mortgage industry is moving in.
With less business to go around, those determined to stay in the game are getting more creative. Whether it’s a full-blown return to subprime lending remains to be seen, but it’s certainly a hint of the past.
For the record, Carrington also lowered the minimum FICO score for VA loans and USDA loans to 550 from 580.
The pricing adjustment for a credit score that low is 2.75, according to a Carrington ratesheet. That will lead to higher closing costs and/or a higher mortgage rate.
But it still provides a source of financing for previously shutout homeowners.
Interestingly, the company plans to eliminate both conventional and jumbo loans from their wholesale product line effective April 1st.
So it appears as if Carrington wants to be the destination of choice for mortgage brokers to send their low-FICO gov loans, ostensibly because they’ll know how best to handle them.
Wells Fargo Used to Be Okay with Even Lower Scores
While 550 sounds pretty darn low, back in 2011 Wells Fargo offered FHA loans with scores as low as 500 following pressure from HUD to loosen up.
However, applicants needed down payments of at least 10% and DTI ratios couldn’t exceed 31%, a combination that was probably pretty rare.
Long story short, most individuals with really poor credit tend to not to have lots of income or assets at their disposal.
And I think that guideline was pretty short-lived because Wells just announced it was lowering its minimum credit score for FHA loans to 600 from 640.
However, I believe that allows for a down payment as low as 3.5%, which is much lower than the 10% requirement for all FHA loans with credit scores below 580.
To sum it up, lenders are coming to terms with reality and easing guidelines. It may not be 2006-2007 just yet, but if volume continues to drop, lenders will need to get increasingly creative if they want to stick around.
Further proof of this loosening is evident in the latest Origination Insight Report from Ellie Mae, which revealed that 33% of closed loans in February had a FICO score south of 700, compared to just 24% a year earlier.
Additionally, the average FICO score for a closed loan was 724 in February, which while still relatively solid, was down from 745 a year ago.
Read more: Getting a mortgage with a low FICO score.
If you’ve already qualified for Social Security Disability Insurance (SSDI), you can earn up to $1,050 a month without triggering the income programs that could affect your benefits. If you’re still applying for benefits, you generally won’t qualify for disability if you make more than $1,470 a month ($2,460 if you’re blind)
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The Social Security Administration (SSA) has several work incentive programs to help disability recipients continue working. These include a trial work period (TWP), where there’s no earnings limit for nine months, an extended period of eligibility (EPE), which allows you to earn under the SSA’s limit for 36 additional months, and a Ticket to Work program, which offers free employment services.
Here are the rules for SSDI and how to work part time without losing your disability benefits.
Rules for receiving disability benefits
You can still work part time and receive SSDI benefits if you don’t meet the SSA’s requirements for “gainful” employment, according to Aleyda Toruno, a Work Incentives Planning and Assistance (WIPA) coordinator with Disability Rights California.
The SSA uses earnings guidelines called substantial gainful activity (SGA) to determine whether someone’s disability qualifies them as needing additional benefits.
The SGA for 2023 is $1,470 per month ($2,460 if you’re blind), meaning that if you earn more than that, you likely won’t qualify for benefits.
“The rules for part-time work or return to work differ for a person who is still attempting to prove disability versus a person who has already been deemed disabled under Social Security’s programs,” says Jennifer Cronenberg, senior counsel and director of legal information at the National Organization of Social Security Claimants’ Representatives (NOSSCR).
“Anyone who is already receiving SSDI benefits who returns to any type of work should report their earnings to SSA immediately,” Cronenberg says. This is to avoid overpayment; they should also report a decrease or cease in work to avoid underpayment.
Work incentive programs
The SSA has three programs called work incentives to support disability recipients in returning to work. These can be “pathways for disability benefits recipients to test their ability to return to work without immediately losing their benefits,” Cronenberg says.
Trial work period
A trial work period allows a disabled person to test their ability to earn an income on their own for a set amount of time
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You’ll trigger a TWP automatically if you start earning over $1,050 per month while already receiving SSDI.
A TWP allows you nine months, not necessarily consecutive, in a rolling 60-month period in which you can earn any amount of money and still receive your full SSDI benefits.
You must still meet the definition of a disability and report your earnings to the SSA to qualify for a TWP.
“Earning well above SGA during a TWP could trigger a continuing disability review (CDR) with SSA, whereby they may determine that you’re no longer disabled and terminate your benefits,” Cronenberg says.
Extended period of eligibility
When the nine months of a TWP end, an extended period of eligibility gives you 36 more months to continue working and collecting SSDI.
Your income must stay below the SGA limit for the year ($1,470 for 2023, $2,460 if you’re blind) during an EPE.
Your benefits will be suspended if you earn above SGA during the 36-month period, but they can be reinstated if your earnings dip below SGA again.
If you earn above SGA but have other work incentives that apply, you can continue receiving benefits, Toruno says. For example, any work expenses that a person incurs because of their disability — such as transportation to and from work or specialized work equipment — are deducted from their earnings
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Ticket to Work program
The SSA’s Ticket to Work program connects SSDI recipients with free employment services such as career counseling and job placement to help them return to work
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Ticket to Work provides services instead of placing earnings limits. It’s “something that a person who is receiving SSDI can participate in if they would like help returning to the workforce, with the goal of reducing their need for SSDI,” Cronenberg says.
The SSA won’t conduct a CDR (and potentially suspend your benefits) while you’re participating in Ticket to Work.
Anyone receiving SSDI and interested in working qualifies as long as they are still disabled.
Frequently asked questions
What is a work incentive?
The SSA offers work incentive programs to help SSDI recipients return to work. A trial work period and extended period of eligibility allow you to continue to earn income, and the Ticket to Work program offers education, training and rehabilitation programs for individuals who need help looking for or staying in work.
Does SSI offer the same work incentives as SSDI?
SSI offers its own set of work incentives and programs that come with different rules and stipulations than SSDI. You can learn more on the Social Security website.
What happens if I lose my job while I’m on a trial work period?
If you start earning money that triggers a trial work period and then lose your job, you’ll keep your benefits. If you lose your job within your 36-month extended period of eligibility, you’ll need to contact the SSA to have your benefits reinstated.
Will I lose my Medicare coverage if I lose SSDI benefits?
No, you’ll still receive free Medicare Part A coverage for at least 93 months after your trial work period if you stop receiving SSDI payments because of your earnings. This is one of SSA’s work incentives. You’ll still need to pay a premium to receive Medicare Part B.
The good news is that a home price bottom is expected by year-end, according to one of the nation’s most respected economists.
The bad news, at least for current homeowners, is that prices are set to fall another 11 percent before stabilizing.
Since their peak in 2006, home prices have fallen about 25 percent, per a Moody’s Economy.com report issued today, but the end may be near.
“Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight for the nation,” said Moody’s chief economist Mark Zandi, in a release.
“Presuming we see strong action by policymakers to help support the economy and the housing market, prices will begin to recover by the end of this year.”
Of course, Zandi noted that those same policymakers have yet to “break the downward spiral” of rising job losses, frozen credit markets, and record foreclosures.
But with home prices falling to more affordable levels and homebuilder inventory sliding to more appropriate positions, stabilization is within reach.
The report notes that 62 percent of the nation’s 381 metro areas will see double-digit declines by the time the market correction is complete.
Declines will exceed 20 percent in about 100 of those areas, with the hardest hit regions of Southeast Florida, California’s Central Valley, and Riverside, CA expected to decline by upwards of 50 percent.
On the bright side, 42 markets, mainly in the South, are expected to fall by less than one percent.
Note that this is just a bottom, not a recovery.
“Even if the recession ends late this year, as expected, the subsequent recovery looks to be lackluster. Real GDP is not expected to return to its prerecession peak until late 2010, and the nation will not approach a full-employment jobless rate of 5% before President Obama’s term nears its conclusion in 2012,” the release said.
“A number of uncertainties in both the housing and economic outlooks remain, and the risks tilt to the downside.”
Zillow is getting into the mortgage game as it bids to own more of the home buying process. The company has just acquired Mortgage Lenders of America to fuel its new bid, it said in an announcement timed to coincide with its second-quarter earnings report.
The company reported total revenue of $325.2 million for the second quarter, up 22 percent compared to one year ago. Profits came in at 13 cents per share, excluding certain costs, above Wall Street’s estimates of profits of 10 cents a share.
Mortgage Lenders of America is a national brokerage headquartered in Overland Park, Kansas. With the acquisition, Mortgage Lenders’ 300-odd employees will now become a part of the Zillow Group.
Terms of the acquisition were not disclosed.
Zillows move into mortgage lending doesn’t come as a surprise, as the company recently kicked off a new line of business this year that involves buying up homes, doing them up and selling them on. Zillow’s Instant Offers service was first made available in Phoenix, Arizona, and has already been expanded to Las Vegas and Atlanta since then. Now, by acquiring a lender, Zillow can serve its customers during more steps of the home buying process.
“We’re taking our huge advantages, which are our audience and our brand and our resources, and expanding into other business vertically,” Zillow CEO Spencer Rascoff said on the company’s second-quarter earnings call.
Zillow’s audience is certainly big enough, as it reported 186 average monthly users during its most recent quarter, up 4 percent year-over-year. This figure includes all of Zillow’s brands, including Trulia, RealEstate.com and StreetEasy.
“This quarter also marked a major milestone in Zillow Group’s history, as we launched our Homes business and began buying houses directly from homeowners in two cities through Zillow Offers,” Rascoff said in a statement. “At this exciting time in the real estate industry, Zillow Group is committed to developing innovative technology and services, like Zillow Offers and, with today’s announcement, potential for mortgage originations, that help our partners meet evolving consumer expectations, while generating more revenue opportunities.”
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
Talk of another housing bubble is not new. In fact, pundits have been fretting about another bubble for over a year now thanks to rapidly rising home prices, with Las Vegas and Phoenix already considered to be bubble markets.
That’s the problem with good news – eventually the pessimists come out and somehow turn it into bad news.
Every quarter, real estate lister Trulia releases its “Bubble Watch” report, which reveals whether home prices are undervalued, overvalued, or just right.
No National Housing Bubble, Yet…
On the national level, the company believes home prices are still undervalued, although not by much.
During the first quarter, they said national home prices were 5% undervalued, which means we aren’t in a nationwide bubble.
However, one quarter ago national home prices were 6% undervalued, and a year ago they were 10% undervalued.
So you can see how quickly we can go from undervalued to overvalued, and eventually to full-blown bubble status.
But with home price appreciation finally moderating, we might be able to buy a little more time before the sky falls again.
For the record, national home prices reached a bubblicious high in the first quarter of 2006, when they were 39% overvalued, before crashing to a low of 15% undervalued in the fourth quarter of 2011.
Local Housing Bubbles Are Forming, Mainly in California
That’s the national outlook, but what about local housing markets? Well, those are a mixed bag, per usual, though there is growing concern in some regions, namely California.
During the first quarter of 2014, 19 of the largest 100 metros were classified as overvalued. That’s the highest number since the fourth quarter of 2009.
Additionally, home prices were overvalued by more than 10% in four large metros, the highest total since late 2009.
Still, it’s nowhere near as bad as the height of the previous boom when all 100 metros were overvalued, with a staggering 91 by more than 10%.
Let’s talk about the new bubbles, all of which happen to be in my neck of the woods. The worst one is in Orange County, California, aka mortgage central.
Home prices in the OC were 16% overvalued relative to their fundamentals in Q1 and asking prices were up 16.9% year-over-year.
Los Angeles, CA wasn’t far behind, with prices seen as 13% overvalued in the first quarter. Asking prices were up 18.9% year-over-year, so clearly homeowners aren’t shy about asking for a little bit more.
Honolulu (13% overvalued), Austin (11% overvalued), and Riverside-San Bernardino, CA (10% overvalued) rounded out the top five most overvalued metros.
Another three of the top 10 overvalued metros can be found in California, including San Jose (+8%), San Francisco (+7%), and Ventura County, CA (+6%).
The Golden State is decidedly bubbly, with eight of the 11 largest metros in California now deemed overvalued, with Bakersfield, Fresno, and Sacramento the lone exceptions.
Where Homes Are Still Pretty Cheap
If you’re looking for a deal, there are still places where homes are cheap relative to their historic norms.
You’ll want to look first in Detroit, Michigan, where home prices are still 20% undervalued.
Nearby Lake County-Kenosha County, IL-WI is also having a sale, with homes 18% undervalued, similar to homes in Cleveland and Toledo, Ohio.
If you’re not a fan of cold weather, head south to the Palm Bay-Melbourne-Titusville, FL metro where prices are 17% undervalued.
Comparable discounts are available in Memphis, Hartford, Chicago, and certain parts of Connecticut.
The takeaway is that a normal housing market will always have areas that are overvalued and undervalued, which is why the experts say to pay attention to your local market, and less so the national story.
And you certainly need to “go local” when determining if it’s the right time to buy or just keep on renting.
In the meantime, let’s enjoy the recovery. We can all start worrying when home prices in every major metro are overvalued (or at least half of them), which they clearly are not.
Key findings about discrimination in home valuations are under dispute. That hasn’t stopped them from informing policy decisions.
During the past two years, regulators and lawmakers have introduced and adopted new rules and guidelines aimed at curbing the impacts of racial bias on home valuations. But some appraisers and researchers insist these efforts have been based on faulty data.
Conflicting findings from a pair of non-profit research groups call into question whether or not recent actions will improve financial outcomes for minority homeowners without leading to banks and other mortgage lenders taking on undue risks.
The debate centers on a 2018 report from the Brookings Institution, which found that homes in majority-Black neighborhoods are routinely discounted relative to equivalent properties in areas with little or no Black population, a trend that has exacerbated the country’s racial wealth gap. The study, which adjusts for various home and neighborhood characteristics, found that homes in Black neighborhoods were valued 23% less than homes in other areas.
“We believe anti-Black bias is the reason this undervaluation happens,” the report concludes, “and we hope to better understand the precise beliefs and behaviors that drive this process in future research.”
The study, titled “Devaluation of assets in Black neighborhoods,” has been cited by subsequent reports published by Fannie Mae and Freddie Mac, academics and White House’s Property Appraisal and Valuation Equity, or PAVE, task force, which used the data to inform its March 2022 action plan to address racial bias in home appraisal.
Meanwhile, as the Brookings’ findings proliferated, another set of research — based on the same models and data — has largely gone untouched by policymakers. In 2021, the American Enterprise Institute replicated the Brookings study but applied additional proxies for the socioeconomic status of borrowers.
By simply adding a control for the Equifax credit risk score for borrowers, the AEI research asserts, the average property devaluation for properties in Black neighborhoods falls to 0.3%. The researchers also examined valuation differences between low socioeconomic borrowers and high socioeconomic borrowers in areas that were effectively all white and found that the level of devaluation was equal to and, in some cases, greater than that observed between Black-majority and Black-minority neighborhoods.
“That, to us, really suggests that it cannot be race but it has to be due to other factors — socioeconomic status, in particular — that is driving these differences in home valuation,” said Tobias Peter, one of the two researchers at the AEI Housing Center who critiqued the Brookings study.
Contrasting conclusions
Peter and his co-author, Edward Pinto, who leads the AEI Housing Center, acknowledge that there could be bad actors in the appraisal space who, either intentionally or through negligence, improperly undervalue homes in Black neighborhoods. But, they argue, the issue is not systemic and therefore does not call for the time of sweeping changes that the PAVE task force has requested.
Brookings researchers have refuted the AEI findings, arguing that, among other things, their controls sufficiently rule out socioeconomic differences between borrowers as the cause of valuation differences. They also attribute the different outcomes in the AEI tests to the omission of the very richest and very poorest neighborhoods.
Jonathan Rothwell, one of the three Brookings researchers along with Andre Perry and David Harshbarger, said the conclusion reached by AEI’s researchers ignored the well documented history of racial bias in housing.
“No matter how nuanced and compelling the research is, no one can publish anything about racial bias in housing markets, without our friends Peter and Pinto insisting there is no racial bias in housing markets,” Rothwell said. “Everyone agrees that there used to be racial bias in housing markets. I don’t know when it expired.”
Mark A. Willis, a senior policy fellow at New York University’s Furman Center for Real Estate and Urban Policy, said the source of the two sets of findings might have contributed to the response each has seen. While both organizations are non-partisan, AEI, which leans more conservative, is seen as having a defined agenda, while the centrist Brookings enjoys a more neutral reputation.
Still, Willis — who is familiar with both studies but has not tested their findings — said while the Brookings report notes legitimate disparities between communities, the AEI findings demonstrate that such differences cannot solely be attributed to racial discrimination.
“The real issue here is there are differences across neighborhoods in the value of buildings that visibly look alike, maybe even technically the neighborhood characteristics look alike, but aren’t valued the same way in the market,” Willis said. “Whatever that variable is, Brookings hasn’t necessarily found that there’s bias in addition to all of the other real differences between neighborhoods.”
Setting the course or getting off track?
The two sets of findings have become endemic to the competing views of home appraisers that have emerged in recent years. On one side, those in favor of reforming the home buying process — including fair housing and racial justice advocates, along with emerging disruptors from the tech world — point to the Brookings report as a seminal moment in the current push to root out discriminatory practices on a broad scale.
“It’s been really helpful in driving the conversation forward, to help us better define what is bias and be specific about how we communicate about it, because there’s a number of different types of bias potentially in the housing process,” Kenon Chen, executive vice president of strategy and growth for the tech-focused appraisal management company Clear Capital, said. “That report really … did a good job of highlighting systemic concerns and how, as an industry, we can start to take a look at some of the things that are historical.”
Appraisers, meanwhile, say the Brookings findings made them a scapegoat for issues that extend beyond their remit and set them on course for enhanced regulatory scrutiny.
“What’s causing the racial wealth gap is not 80,000 rogue appraisers who are a bunch of racists and are going out and undervaluing homes based on the race of the homeowner or the buyer, but rather it’s a deeply rooted socioeconomic issue and it has everything to do with buying power and and socioeconomic status,” Jeremy Bagott, a California-based appraiser, said. “It’s not a problem that appraisers are responsible for; we’re just providing the message about the reality in the market.”
Responses to the Brookings study and other related findings include supervisory guidelines around the handling of algorithmic appraisal tools, efforts to reduce barriers to entry into the appraisal profession and greater data transparency around home valuation across census tracts.
But appraisers say other initiatives — including what some see as a lowering of the threshold for challenging an appraisal — will make it harder for them to perform their key duty of ensuring banks do not overextend themselves based on inflated asset prices.
Even those who favor reform within the profession have taken issue with the Brookings’ findings. Jonathan Miller, a New York-based appraiser who has deep concerns about the lack of diversity with the field — which is more than 90% white, mostly male and aging rapidly — said using the study as a basis for policy change put the government on the wrong track.
“There’s something wrong in the appraisal profession, and it’s that minorities are not even close to being fairly represented, but the Brookings study doesn’t connect to the appraisal industry at all,” Miller said. “Yet, that is the linchpin that began this movement. … I’m in favor of more diversity, but the Brookings’ findings are extremely misleading.”
Willis, who previously led JPMorgan Chase’s community development program, said appraisers are justified in their concerns over new policies, noting this is not the first time the profession has shouldered a heavy blame for systemic failures. The government rolled out new reforms for appraisers following both the savings and loan crisis of the 1980s and the subprime lending crisis of 2007 and 2008.
But, ultimately, Willis added, appraisers have left themselves open to such attacks by allowing bad — either malicious or incompetent — actors to enter their field and failing to diversify their ranks.
“It seems clear that the burden is on the industry to ensure that everybody is up to the same quality level,” he said. “Unless the industry polices itself better and is more diverse, it is going to remain very vulnerable to criticism.”
The average U.S. mortgage rate for a 30-year fixed loan is 2.9% this week, up from 2.87% last week, Freddie Mac said in a report on Thursday. It’s the ninth consecutive week the rate has been below 3%.
The average rate for the less-popular 15-year mortgage was 2.4%, rising from last week’s record low of 2.35%, the mortgage giant said.
Sub-3% rates are boosting real estate demand and fueling bidding wars. U.S. home prices jumped more than 2% between May and July, the largest two-month gain on record, as Americans emerging from COVID-19 lockdowns bought real estate, the Federal Housing Finance Agency said in a Wednesday report.
“Historically low interest rates are the primary driver behind the strength in housing demand that we’ve seen in recent months, and that has led housing to be a bright spot for the overall economy,” Robert Dietz, chief economist of the National Association of Home Builders, said in an interview.
Rates started tumbling after the Federal Reserve committed to buying mortgage-backed securities in March to keep credit flowing amid the worst pandemic in more than a century. Because of that, the average U.S. rate for a 30-year fixed mortgage, as measured by Freddie Mac, has hit new lows nine times since COVID-19 first started spreading in America.
Sales of existing homes rose to a 14-year high of 6 million at an annualized pace in August, the National Association of Realtors said in a report on Tuesday.
Combined sales of single-family houses, townhomes, condominiums and cooperatively owned apartments rose 2.4% from July, according to the report. Compared to a year ago, last month’s sales were 11% higher, NAR said.
The median existing-home price last month was $310,600, up 11.4% year over year, and prices rose in every region, according to NAR.
When you’re buying a life insurance policy, you may need coverage that begins right away, but full underwriting can take weeks to complete. Simplified issue life insurance is an option for people who need immediate coverage. However, that convenience comes at a cost. You’ll often pay higher premiums and receive a lower death benefit than you’d get through a standard life insurance policy.
What is simplified issue life insurance?
A traditional life insurance policy requires a medical exam and may take four to eight weeks to be in force. Simplified issue life insurance is a type of life insurance policy that bypasses the typical underwriting process and allows you to purchase coverage immediately.
With simplified issue life insurance, you’ll skip the life insurance medical exam and lab tests. Instead, you’ll provide some basic information, like your age, address, occupation, height and weight, and answer a health questionnaire.
You can apply online, by phone, or in person through a life insurance agent or broker. Usually, you’ll find out immediately whether your application has been approved or denied. If approved, you can typically have your policy in force that same day.
How does simplified issue life insurance work?
Simplified issue underwriting is available for most types of policies, including term life, whole life, and some types of universal life insurance. According to a 2020 report by the Society of Actuaries, major insurers approve about 70% of simplified issue applications
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When you apply for a simplified issue policy, the insurance company will base its decision on the information you’ve provided. But carriers also use third-party reports to determine your eligibility, such as:
MIB Group reports. Your file with the MIB Group, formerly known as the Medical Information Bureau, shows whether you’ve applied for individually underwritten life insurance, health insurance, disability insurance, and long-term care insurance in the last seven years, along with whether you’ve been rejected for coverage
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Prescription drug history. Insurers check databases that aggregate your prescription drug history using records from health insurance companies, pharmacies, and health care providers.
Motor vehicle records. Insurance companies will check for things like DUIs, suspended driver’s licenses and speeding tickets when they decide whether to insure you.
Some companies also use internet searches and random phone interviews to verify information. The use of criminal background screenings and medical billing data is becoming more common, as well.
Answering “yes” to a question that indicates a health condition doesn’t necessarily disqualify you. But if your answers are inconsistent with third-party information collected, your life insurance application could be referred for further review. For example, if you say you have no history of heart disease but your prescription records show you take medication for a heart condition, the insurer could require standard underwriting.
Who’s eligible for simplified issue life insurance?
Simplified issue life insurance is available to people up to age 75, according to the Society for Actuaries report. Though age restrictions vary by carrier, you’ll often qualify for a higher death benefit if you’re in the range of 16 to 55 years old.
Unlike with guaranteed life insurance, however, you can be rejected for simplified issue insurance. If you have a serious underlying health issue or you engage in dangerous activities, your application could be denied or referred to an underwriter.
How much coverage can you get?
When you apply for a simplified issue policy, your insurer has less information about you than it would get if you went through a full life insurance underwriting process that included a medical exam. That makes you riskier to insure from an insurer’s perspective. As a result, simplified issue policies generally have lower death benefits than traditional policies.
Though some insurers offer as much as $500,000 in coverage, a typical simplified issue term policy will offer coverage amounts ranging from $100,000 to $250,000. Customers older than 55 are frequently limited to $100,000.
Simplified issue permanent life insurance policies are typically designed for burial and other final expenses, so they offer lower death benefits. Many simplified issue whole life insurance policies have maximum death benefits between $25,000 and $50,000.
Simplified issue life insurance pros and cons
Advantages of simplified issue life insurance
Simplified issue life policies don’t require a medical exam or bloodwork.
If your application is approved, coverage can begin the same day.
You can typically buy more coverage than you’d get through a guaranteed issue policy.
Disadvantages of simplified issue life insurance
You may qualify for lower premiums and more coverage through a traditional policy.
Your application may be rejected if you have preexisting health conditions, a dangerous job, or high-risk hobbies.
Is simplified issue life insurance worth it?
A simplified issue policy may be worth it if you’re in relatively good health and you need your policy to be in force right away. For example, if you’re a new parent seeking coverage, you may not want to wait several weeks for coverage to begin. Or if you’ve been ordered by a court to obtain life insurance as part of a child support agreement, you may need your policy to be in force immediately.
If you need immediate coverage, you may have the option of buying a temporary policy while you wait for a traditional life insurance application to be approved. But if you have dependents and you’re unwilling to deal with the time and medical exam required for most life insurance policies, buying simplified issue life insurance can be worth it to provide financial protection for your loved ones.
Alternatives to simplified issue life insurance
Simplified issue life insurance is worth exploring when you have an immediate life insurance need, but it’s not the only option. Here are some alternatives to consider.
Buy temporary life insurance to avoid a coverage gap. If you’re willing to undergo a medical exam but need coverage to begin immediately, you could purchase temporary life insurance for protection while your application is processed. The applications for temporary coverage and simplified issue life insurance are similar in that you’ll only need to complete a basic questionnaire. But once you obtain temporary life insurance, you’ll typically have around 90 days to complete a medical exam for your permanent policy. Insurers often limit your coverage to $1 million through a temporary policy.
Undergo full underwriting. Going through the standard underwriting process takes time, and the medical exam can be intimidating. But it could save you money on premiums, especially if you’re young and in good health.
Obtain group life insurance through your employer. If your employer offers group term life insurance as a benefit, you can usually obtain coverage at little to no cost, without a medical exam or answering health questions. The death benefit is usually capped at one or two times your salary. You may have the option to purchase additional coverage, although you might need to provide health information or undergo an exam. Most group policies won’t allow you to keep your coverage if you leave your job
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Frequently asked questions
What’s the difference between simplified issue and guaranteed issue life insurance?
A guaranteed issue policy is a type of life insurance that accepts anyone, with no medical exam or health information required. A simplified issue life policy offers a streamlined application process, but coverage isn’t guaranteed and you’ll need to answer questions about your medical history when you apply.
Can I get life insurance without a medical exam?
You can obtain both simplified issue life insurance and guaranteed issue life insurance with no exam. However, an exam may help you lower your premiums and qualify for more coverage if you’re young, healthy and don’t engage in risky activities.
Does simplified whole life insurance build cash value?
As with any whole life policy, simplified whole life insurance will build cash value. But because these policies are often intended specifically for final expenses, the cash value is minimal compared with traditional whole life policies.