What are the most common topics and homebuyer questions I’m being asked in this current market?
Here’s a look at my answers. If you have a question, don’t hesitate to reach out. My email’s at the end of this column.
When is a good time to buy? Buy now? Wait until prices soften and rates drop?
Also see: Array of mortgages cover hard-to-qualify properties, borrowers
There’s no telling when Southern California home prices will soften. Ditto for mortgage rates dropping.
As you’ve probably heard a million times, “Marry the property, date the (mortgage) rate.”
In other words, if you can find a home that fits your needs, and you can afford the monthly payments, you might as well buy it. Just hope and pray mortgage rates come down at some point so you can refinance into more affordable house payments.
Related: Homebuyers starting to revolt over steep prices
Cash buyers
If you can cobble the funds together to pay cash for the property, later you can pull up to 75% of that money back through something called delayed financing. Essentially, it’s a 30-year fixed rate priced as a cash-out refinance. Cash-out pricing is slightly higher than fixed rate purchase pricing.
Contingencies
This question is not so simple for move-up or move-down buyers who don’t have the financial wherewithal to buy a place before their existing home is sold. The reason being is almost every home seller is unwilling to accept a contingent offer (contingent upon the sale of the buyers’ home) in these high-demand times.
More on homebuying: How will house hunters find and buy homes, post-NAR settlement?
Do you sell first and then buy? If you sell first, can you rent it back for, say 60 days? Or do you have to move twice? My advice: Sell and then rent something short-term before you buy.
Mortages and rates
Why are mortgage rates so different from lender to lender?
Some lenders may be more competitively priced than other lenders. Sometimes, unknowingly, you compare apples to oranges. You must be very specific. For example, an attached condo with 20% down is priced very differently than a single-family home with the same down payment. Shop the specific details around. Get written rate quotes.
Are mortgage rates going to drop by the end of the year? I think they will drop to the low 6% range. This won’t necessarily help affordability, though. It might, in fact, drive prices up even further. The opportunity may be for someone who is sitting on 7% rate to say it’s time to refi.
Condos
What are red flags when it comes to buying a condo? Have your lender check before you make an offer to see if the condo is Fannie Mae or Freddie Mac financing eligible. If it’s ineligible, then don’t make an offer unless you’re prepared to pay a rate that is 1-2% higher than the market. And you have 20% to put down.
As an aside, there is an insurance crisis, especially when it comes to condos. The key is having and maintaining 100% replacement coverage for the entire complex. The primary reason condos are losing Fannie Mae and Freddie Mac financing is the lack of adequate insurance coverage.
Walk around the complex. Does it appear to be in reasonable condition, or does it look like there is a lot of deferred maintenance? If the property looks tired, you might very well be in for special assessments down the road to repair the roof for example.
Read the recent board meeting minutes. Look at the budget and cash reserves ahead of going into escrow (if possible).
Buying from agents
Should I buy directly from the listing agent? Does this increase my chances of getting the property?
I don’t recommend going directly to the listing agent as there is an inherent conflict of interest. An agent can’t do his or her best for the seller and the buyer at the same time. That said, plenty of buyers do. Oftentimes it works out for all concerned.
Do I have to worry about paying a commission to a buyers’ agent in respect to the National Association of Realtors antitrust settlement?
It seems the effects of this ruling are still in flux. I’ve yet to have someone tell me he or she had to pay a buyer’s agent directly. Hard changes have not kicked in yet. So, it’s too soon to know.
Financing
I’ve been looking for a property for a long time and have yet to be the winning bidder. How long is a loan pre-approval good for?
Pre-approvals are typically good for 90-120 days before a new credit report needs to be run.
How much does a credit report hard pull hurt my credit scores?
Generally, it can reduce your scores by anywhere from zero to 10 points. This is not a permanent reduction on your credit score.
How much can I qualify to pay on a house payment each month?
Loan programs have different criteria. Assuming a well-qualified borrower is putting 20% down on a Fannie Mae loan, he or she can qualify up to a 49.9% debt to income ratio.
That calculation is the principal and interest, property taxes, monthly insurance and any HOA fees, plus certain monthly bills divided by the borrower’s gross monthly income (before taxes).
For example, let’s say a borrower’s estimated total house payment will be $7,000. The borrower has $1,000 per month of bills. The borrower’s income is $17,000 per month. Take $8,000 divided by $17,000 equals 47%. The borrower qualifies for this and a bit more.
Freddie Mac rate news
The 30-year fixed rate averaged 6.99%, 4 basis points lower than last week. The 15-year fixed rate averaged 6.29%, 7 basis points lower than last week.
The Mortgage Bankers Association reported a 5.2% mortgage application decrease compared with a week ago.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $144 less than this week’spayment of $5,095.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.75%, a 15-year conventional at5.625%, a 30-year conventional at 6.25%, a 15-year conventional high balance at 6% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year-high balance conventional at 6.625% and a jumbo 30-year fixed at 6.875%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.
Eye-catcher loan program of the week: A 30-year VA at 5.75% with one point.
Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or [email protected].
