Rates Are Low, Hello!

Falling Mortgage Rates

The question is, will they go lower? I don’t know, what makes you think you know?

Presently, it is the Corona virus scare that has ravaged the stock market and pushed long term yields as low as I have seen them for a very long time. Is a correction coming? It always does, sooner or later.

What does this mean for you? You can do nothing, this is always an option. You can call your trusted mortgage broker and see what is available for you and your circumstances.

Refinancing is a hassle. It can be if your financial house is chaotic and your routine documentation is helter-skelter, then getting things in order can be daunting. However, with a little work, often on your keyboard, you can have what a lender needs in short order. Does a little effort resulting in monthly mortgage savings, resulting in hundreds of dollars of monthly savings make sense? You tell me.

With home appreciation the last few years being steady, even amazing, you may have the opportunity to achieve the following:

  • Significantly lower your monthly payment
  • Eliminate Mortgage Insurance
  • Convert home equity to cash for whatever purpose you desire
  • Consolidate debt
  • Buy a second home someplace warm, or someplace mountainous and cold if you ski

Your only limit is your imagination!

Appraisal Waiver? Something else, an appraisal waiver (as in I don’t need one for your file) is far more common today than a year ago. With the necessary exhibits from you and an appraisal waiver I can close your refinance in 12 business days!

To be clear, I always advise my clients to think long term with the goal of a mortgage free home down the road. However, that does not mean we can’t take advantage of the opportunities afforded by home ownership along the way.

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The “Rule of Same”


Shopping for a home loan can be daunting. What makes this process confusing is each lender will present their closing costs and pre-paid items in different ways and typically in different places.  Add to this the forms required by law (Good Faith Estimate, Truth In Lending) and getting to the bottom line is even more daunting.

However, you can cut to the bottom line by using the following guidelines by using the “Rule Of Same.”  Here are the steps you need to follow:

Ask for a Closing Cost Summary that includes every fee and charge for Closing Costs and Pre-Paid items using the following guidelines:

  • The same loan type (FHA, VA, Conventional, USDA)
  • The same loan term
  • The same interest rate
  • The same loan balance
  • The same lock period (usually 30 days)
  • On the same day

(at this point you are literally comparing apples to apples)

Once you have all of the Closing Cost Summary’s you want you, sit down and go over the itemization of fees and pre-paid charges for each.  After locating the pre-paid charges you need to deduct them from the total charges.  These pre-paid items are:

  • 1st year homeowners insurance
  • Homeowners insurance deposit
  • Pre-paid property taxes
  • Property tax deposit
  • Interim (or Per Diem) interest. This can also be called Daily Interest

After you have done this, whatever lender has the lowest cost is the best deal for you.  Why does this work? Pre-paid charges are computed the same with every lender because they are based on the actual cost for each item. Every escrow company computes pre-paid charges in the same way when closing your transaction so these fees are the same for everyone. Other than the pre-paids, everything else is classified as a closing cost.

You may have read guidelines that say the APR is the best way to determine the best deal. Unfortunately, lenders have slight variations on how they compute APR so this calculation is not reliable.

The Rule Of Same will reliably get you to the best bottom line every time.

(Rates and fees are determined by your credit score, down payment, loan type and other factors so always seek a quote from a reliable source that includes an APR calculation. Understand, all loan terms, including the available rate and APR are subject to change without notice until all qualifying criteria for a specific loan transaction have been established. Consult your lender for details.)

Virus Driven Lower Rates

20 Year Treasury

As of late Friday afternoon (2/28/2020) the U.S 10 Year Treasury Note closed at 1.156%. Since mortgage rates follow the 10 Year Treasury Note this means rates are not just low, they are very low. This drop has taken about a month to happen with most of the downward momentum driven by corona virus fears.

If you are heavily invested in the stock market it has been ugly for you. If you are paying on a mortgage with a rate above 4%, you should consider a refinance.

As the stock market goes, there is usually a correction. Be patient. As for mortgage rates, they tend to walk to a lower rate but run when they start to rise. Luck has more to do with catching the bottom than anything else. Catching the trend when it is at it’s lowest is the smart play.

Will rates go lower? No one knows. Is it smart to consider a refinance now? Maybe. Let me run your numbers and I will give you a detailed analysis of where you are now, what your goals are and if the numbers work in your favor. I just need a few facts about your current loan, I run the numbers and send them back to you.

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Tax Reform – A Recap Of Most Likely Outcome

I find it fascinating how the talking heads of all media treat everything as if it has already happened. Tax reform is not yet out the House, needs to clear the Senate then get signed into law. Based on what I have read, most taxpayers will see a reduction in their annual taxes. Some taxpayers in the higher brackets will experience a reduction in their deductions for home mortgage interest, property taxes and state income tax. However, current homeowners will see no change in their mortgage deduction status for any loan already in place. New homeowners will fall under the new rules. However, all of this is moot until a final bill is signed into law.

Here is the recap from the National Organization of Realtors:

“Effects on the Tax Benefits of Homeownership

Standard Deduction

  • The final bill follows the Senate bill and provides a standard deduction of $12,000 for single individuals and $24,000 for joint returns.

Mortgage Credit Certificates

  • The House bill repealed MCCs, but the final bill leaves them in the law.

Mortgage Interest Deduction

  • Reduces limit on deductible mortgage debt to $750,000 for new loans taken out after 12/14/17.
    • Current loans up to $1 million are grandfathered.
  • Homeowners may refinance mortgage debts existing on 12/14/17 up to $1 million and still deduct the interest, so long as the new loan does not exceed the amount refinanced.
  • Repeals deduction for interest paid on home equity debt through 12/31/25.
  • Interest is still deductible on home equity loans if proceeds are used to substantially improve the residence.
  • Interest remains deductible on second homes, but subject to the limits.

Tax Rates

  • The tax rate schedule general follows the Senate bill, with seven rates ranging from 10% to 37%.
  • The final bill retains the current-law maximum rates on net capital gains (generally, 15% maximum rate but 20% for those in the highest tax bracket; 25% rate on “recapture” of depreciation from real property).

Moving Expenses

  • Final bill repeals moving expense deduction and exclusion, except for members of the Armed Forces.

Exclusion of gain on sale of a principal residence

  • The final bill retains current law.”


Final Thought

I don’t see anything in the bill that would put a brake on housing based on our overall economy.

Update: As of 03/01/2020 all of the above still applies. Consult your mortgage broker or tax adviser to determine how current law applies to you, specifically.

A Trump Bump – As In Interest Rates

Long term rates have risen and are predicted to rise a little further through next year.  When long term treasury rates rise, so do mortgage rates.  Speculation about a boost in economic growth, higher inflation rates and international trade wars are fueling this rise.

What does this mean for you?  Nothing if you have locked in a rate below 4% for your home loan.  If you are looking for a home or did not lock in a rate for your refinance, expect your interest rate to be higher than quotes you had a week ago.

Is this speculation premature? Perhaps, economists caution their forecasts are tentative.  The marketplace does not like uncertainty so expect a bumpy ride until a clearer picture of a Trump administration and its policies are evident.

As for forecasts by economists, if you want four opinions about the economy, ask three economists.home-mortgage-rates

Another Sweet Spot


On April 11th, 2011 I wrote about a sweet spot in our regional market. At the time the median price of a home was about 10% below what the median income of our region would dictate. My prediction was median home prices would rise as potential home buyer’s caught on to the bargain. I was right. Home values across the region started rising.

I believe we are at another sweet spot in our regional market due to a few things coming together.

First, interest rates are still incredibly low for FHA, VA and Conventional financing. Since this is an information piece and not a solicitation for a loan application, an The same is true for Jumbo loans. The bottom line, mortgage money is very cheap right now.*

Second, inventory is pretty good. There are many homes listed in the region with some area’s chock full of real bargains, listed at price points that will seem crazy three years from now.

Last, buyers are holding back and we are seeing price drops on listings. These price drops are not large, but they are drops. This makes it easier for you to negotiate things like seller paid closing costs.

Why are buyers reluctant?

I believe you can make a good argument for the consumers notion it is extremely difficult getting a mortgage loan. We all know the horror stories of incessant demands for documentation, documentation and more documentation? Ok, we get it. But seriously, it boils down to nailing down your current financial situation, analyzing what you can afford based on all of your information and then approving your loan. This is how things are today, by rules, regulation and frankly, sound lending practices. Many are jumping through the hoops and getting approved. Granted, you need to put your financial life on hold until the process is over but it is well worth it. You move yourself from renting to owning and paying off a mortgage with an interest rate at a historically low level while your housing asset predictably appreciates over the long haul.

What is the bottom line? We are in another sweet spot and now is a great time to buy a home! Should you worry about list prices dropping a little? Not at all. The fundamentals for the Puget Sound Region are very strong moving forward.

*Rates and fees are determined by your credit score, down payment, loan type and other factors so always seek a quote from a reliable source that includes an APR calculation. Understand, all loan terms, including the available rate and APR are subject to change without notice until all qualifying criteria for a specific loan transaction have been established. Consult your lender for details.


Today’s Housing Outlook – Not Shrinkage


Yesterday, Freddie Mac released its market outlook for August.  In short, the report focused on the economy getting back to a more normal state, with housing being driven by the fundamentals.  What are the housing fundamentals that will drive this “more normal” economy?

  • New job formation. Through July, the labor market has added 230,000 new jobs. Robust? No, but better than shrinkage. No one likes shrinkage.
  • Household formation.  In the last four quarters net household formation totaled 458,000 compared to a forecast of at least 1.2 million. It is not shrinkage but those basements and extra bedrooms must be close to capacity. Tucking away over 800,000 households into existing households must create a strain, and greater pent-up demand.
  • The mortgage payment-to-rent ratio is near the lowest in 35 years. With a good rental history for the last two years there is a good possibility you can buy.
  • The current forecast is for continued economic growth and the unemployment rate on a gradual decline. These two factors should contribute to an even bigger bubble of pent-up demand.

What can this mean for housing? Pent up demand suddenly unleashed, coupled with a low inventory of resale  and new construction listings would create another surge in home prices if rates stay in their current range. Only those at the top of the income levels would be the best candidates to actually purchase that first home.

Did you know you can be gifted the entire down payment for a mortgage loan? That is right and lending guidelines allow you to borrow up to 96.5% of the cost of purchasing and major remodeling of a beat up home. With as little as 3.5% of the total cost (which can be gifted) you can make an offer, purchase and have the money set aside for the remodel.  Pretty cool, huh?

What about mortgage loans? Loan applications are down across the board.  Every lender is scratching for loan closings.  What does this mean for you? You can really negotiate a great deal.  Contact me if you want to learn the five easy steps to shop for a loan.

Red Flags


When it comes to that credit approval waiting for the offer to be accepted, what was good last month may not be good today.  Guideline’s and lenders interpretation of same are very tight and getting tighter.  Consider this, Chase and Wells Fargo are steering very clear of any mortgage transaction that is remotely close to the outer edges of “the guidelines” because they are fearful of massive buybacks.

What are the red flags you need to be aware of with any transaction?

  • The credit score – this is not new but lenders want scores well above 700.  If the usable score (lowest mid-score of all borrower’s) is below this number then everything else better be ship shape
  • DTI- this is Debt to Income ratio.  The maximum ratio is 43.99% for conventional loans with extra latitude for FHA loans.  VA uses a residual income approach.  On each loan the key component is how income is calculated.  In many transactions I have seen this year; the adjustments to income can seem draconian.  Think worst case scenario and adjust downward from there until your banker issues that credit approval.
  • Housing to Income Ratio – the same approach to income but the preferred ratio is 28%.  You need every other part of the credit package to be solid to venture above this.
  • Income – what used to work may not work anymore. The self-employed seem to be the hardest hit and this has always been the case. However, a downward blip on last year’s income can send lenders running because of the “ability to repay” component of a Qualified Mortgage.  There really is no guidance on what “ability to repay” means and this is why big banks are running for fear of buybacks.

What does this mean for you?  Make certain you understand all of the components of your credit approval whether the buyer’s agent or the buyer.  Once your credit approval is in place, put your financial picture in stasis until the transaction is closed.

Where is the best place to seek a credit approval?  I am partial to the small, independent mortgage company with a local presence and a record of longevity.  Unlike big banks, they only have one way to make money and that is closing loans.


Cost of a Loan Origination

The cost of originating a loan literally jumped from one quarter to the next, caused primarily by coping with compliance. What does this mean for the consumer?

Certainly, increased costs will be covered by higher fees and/or higher rates. Expect cash strapped first time buyers to be insistent on closing costs being paid by sellers. Will this put a strain on valuation when it is time to appraise?  Right now, this is not likely with the shortage of inventory. However, when things cool down (they always do) expect real challenges getting top value for a seller while the buyer seeks the concessions they need to close.

Nationally, we are in a housing recovery but from my view, it is tenuous.   In our region, the market is strong and will likely stay that way, unless rates take a ridiculous and unexpected jump.

What does this mean for you?  I recommend making hay while the sun shines.

A Chain Of Contingencies

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I was speaking with one of my colleague’s and he was frustrated. He had taken a loan application on the 30th of April and had docs to escrow on the 15th of May for signing and funding on the 16th . It was business as usual with the typical dynamics in play such as the borrower wiring funds, moving trucks ready to unload and the sellers expectations met. You can imagine his consternation when the buyer of his clients’ home in Spokane had a glitch at closing. The funds to close his local transaction were coming from the sale of the Spokane home. Uh oh!

Ever diligent, he was immediately in touch with the Spokane selling agent and then the mortgage loan officer in charge of the buyer’s financing in Spokane. The good news was it truly was a glitch and the Spokane loan closed a few business days later and in turn, my colleague’s transaction funded. As you can imagine, it was not without furrowed brows and stress on this side of the mountains. But what if there is a real problem that could have been foreseen?

This situation is not rare and it raises the question, how far do you go as the listing agent to represent your seller’s interest when you have an otherwise good (or only) offer contingent on the buyer’s home selling? And what if that contingency was one of two or three? When I spoke with one agent, she was adamant she would quiz the listing and selling agents as well as the loan officer on each of the other contingencies until she was satisfied all of the transactions would close. Other agents were less strident about how to manage the situation, and understandably so. My question is this, as a listing agent or an agent representing a buyer in a contingency chain; would it not be better for the licensed loan originator to manage due diligence for you? They are the lending professional and know the right questions to ask without triggering a situation where the other borrower’s financial privacy could be compromised. And they can give you the assurance you need by backing up what they learned with credit approvals and relevant information about the other transactions.

By all means you should expect the mortgage banker on each link of these contingencies to be cooperative and as transparent as is legally allowed. For the lender, a chain of contingencies can present a challenge with verifying funds to close, qualifying their borrower and the actual credit approval. Real mortgage pros will talk to each other, share information appropriately and will be responsible for their part in this chain. Whether you do it yourself as an agent or rely on your chosen mortgage professional, it is a due diligence component that should always be followed.

I would love to learn what you think about this. Click on the link above this post to leave your comments.

Creating clarity in the complex world of residential real estate and real estate finance. Written by Craig Goebbel.