Tighter Credit Standards – 7/17/2020

Tightening Credit Standards

According to the FNMA Mortgage Lender Sentiment Study for the second quarter of 2020, 52% of participants said during the past three months, they have tightened credit standards for mortgages that can be purchased by government sponsored enterprises, GSE, like Fannie Mae and Freddie Mac.  64% reported they had also tightened standards for non-GSE eligible mortgages.

61% had tightened standards for government-backed mortgages such as FHA, VA, and USDA loans.  While these programs have minimum standards set for the borrower, lenders can impose stricter requirements for them to specifically make the loan.

As reported in the second quarter 2020 survey “After years of stability, this quarter, the majority of lenders reported tightening credit standards. Across all loan types, the net share of lenders reporting easing credit standards for both the prior three months and the next three months significantly decreased, reaching survey lows.”

It is expected that lenders will continue to tighten standards for the third quarter.  The reasons precipitating these changes included concern over COVID-19 related factors including home price uncertainty, higher unemployment, policy changes and lower inventory.

It is more important than ever for borrowers to be pre-approved prior to beginning the process looking for homes.  This valuable step can save time, effort, and money.  Your real estate professional, Gary Thompson, can recommend a trusted mortgage professional who can give you the answers you need.

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Re/Max Masters
(801) 821-9292

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Good Decision for a Second Opinion

7/8/2020

You’ve done your homework, contacted a mortgage company and believe you are pre-approved.  That part of the process is finished and you can concentrate of finding a home and moving…or can you?

Pre-qualified and pre-approved are two different things but some people, including some in the business, use the terms interchangeably.  Pre-qualified is an opinion of likelihood that a borrower will be approved based on preliminary information about their income and credit.  Whereas, in a pre-approval, the borrower’s credit report is updated and pulled, income and assets verified and involves pre-underwriting.

Even when you have a highly qualified loan officer, the real decision maker is the underwriter who can commit the lender.  Generally speaking, a person who has been pre-approved receives a written letter stating the terms and conditions of the commitment.

A second opinion from a different lender can be a comforting thing for a borrower.  It will either confirm that the first lender was correct and that the rate and terms being offered are competitive or it will reveal that there could be differences that would warrant more investigation.

Mortgage money is a commodity and while competition usually keeps lenders close to each other in the rates and terms they offer, you won’t know for sure unless you shop around.  The cost for being pre-approved is usually a nominal amount and when you are considering the size of the mortgage you’ll be borrowing for up to thirty years, it makes sense to get a second opinion.

Occasionally, during the process of being pre-approved, an unexpected credit problem may be discovered.  It is better to learn about it early so you’ll have time to correct it before you have contracted on a home.

Your real estate professional, Gary Thompson, will be able to recommend lenders who are active, experienced in the area and can share their experience with you regarding previous loans they have made.  The benefits far exceed the time and effort it takes.  You’ll be looking at the right priced homes; getting the best loan, rate and terms; have increased negotiating power with the Seller and can close quicker because many of the verifications have already been made.

Much Success! Gary

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Re/Max Masters
(801) 821-9292

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Annual Home Advisory

Homeownership is a privilege and a responsibility. Even after decades of owning a home, you may still need some help to handle some of its challenges by focusing on the three “M”s of homeownership: maintenance, minimizing expenses and managing debt and risk.

While many people recognize the benefits of annual wellness, financial, vehicle and equipment maintenance visits, an important checkup that you may not have considered is an annual homeowner advisory or real estate review. Why would you treat the investment in your home with less care than you treat your car or your HVAC system?

Consider exploring the following:

  • Do you know the current value of your home? (You can, by obtaining a list of comparable sales in your immediate area, as well as what is currently on the market for sale.)
  • Have you compared your assessed value for tax purposes to the fair market value in order to possibly reduce your property taxes?
  • Even if you’ve refinanced in the last two years, can you save money and recapture the cost of refinancing in the length of time you plan to remain in your home?
  • Have you considered reducing your mortgage debt with low-earning cash reserves that will not be needed soon?
  • Do you have a record of the improvements you’ve made to your home since you purchased it? Do you know what items can be included?
  • Have you considered investing in rental homes in good neighborhoods to increase your yields and avoid the volatility of the stock market?
  • When was the last time you updated your home inventory of personal belongings? Do you have pictures as well as written documentation?
  • Do you need recommendations of repairmen and other service providers?

This service is part of my point of difference as a real estate professional to provide information to help homeowners not only when they buy and sell but all the years in between too.  My goal is to create lifelong relationships with our customers as their “go to” person whenever they have a real estate question.

My strategy is to provide reliable, consumer-based information about homeownership on a regular basis through email and social networking.  If it benefits you by helping you be a better homeowner, maybe you’ll consider us your real estate professional.

When you don’t know the answers to real estate questions, you know where to get them.

We’re always here to serve your real estate needs. By helping you with the three “M”s of homeownership, we can earn your confidence and trust for the next time you move or a friend of yours needs a recommendation.

Much Success! Gary

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Re/Max Masters
(801) 821-9292

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Rethinking Home

The last two months of the new normal stay at home has led many homeowners to rethink the way they live in their home.  It has now become an office for working at home; a school for children; a gym to stay in shape; and a place for recreation.

The repurposing has people evaluating whether their home still meets their needs or if some changes are necessary.  In some cases, adult children have moved back home, and, in others, there are parents who have moved in for the first time.

Staying at home and sheltering in place is necessary but how much togetherness can one family take and how long is it going to last?  Temporary is stretching into longer than expected and even when vaccines and treatments are discovered, will things really go back to the way they were? 

A home is a place to call your own; to raise your family, share with your friends and to feel safe and secure.  Covid-19 has changed the scope of feeling safe and secure at home and may now be considered a sanctuary of safety more than ever before.

Many of the chief economists in the country feel that real estate will likely lead the country out of this recession.  The housing market is experiencing low inventory and has for almost a decade.  Building has not kept up with demand and prices of existing homes have continued to go up; 8% over last year.  

With 30-year mortgage rates at close to 3.25% and prices expected to continue to rise, an investment in a home can fit your needs and show returns in satisfaction, comfort, enjoyment, and monetary value.

If you are going to be spending more time in your home for all the reasons mentioned, maybe now is the time to consider finding a home that better suits your needs. It can be done in a responsible and safe manner using an online meeting with your real estate professional. Find out what is available and what the process entails to protect you and your family.

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Re/Max Masters
(801) 821-9292

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Mortgage Forgiveness

5/20/2020

During the mortgage meltdown that caused the Great Recession a decade ago, some homeowners lost their homes to foreclosure or constructed a short sale to get out from under the debt.  In most of the cases, the lenders forgave all or part of the debt owed them.

Similarly, in the early 90’s after the failure of the Savings & Loans in the U.S., thousands of homeowners lost their homes in the same way but back then, the policy of the IRS was to consider the forgiven debt as income.  Today, it is still considered income which means that a homeowner could lose their home because they could not afford to pay for it and to make matters worse, they would owe income tax on the debt relieved.

The good news is that in 2007, Congress passed the Mortgage Forgiveness Act and it has continued to be extended with its current expiration of 12/31/20.

The amount forgiven for income tax purposes may not be the same amount owed to the lender.  Mortgage forgiveness has a limited exclusion for discharged home mortgage debt for a principal residence only; it does not include second homes or investment properties.  Only the amount of mortgage debt that can be treated as acquisition indebtedness in included.

In the example below, a homeowner purchased a home and refinanced the home five years later at 80% of the market value.  The new loan proceeds were used to payoff the original mortgage and make $30,000 of new capital improvements.  The revised acquisition debt is the acquisition debt at the time of refinance plus the capital improvements made with the loan proceeds.

The new $400,000 loan produced $39,417 of home equity debt which is not considered acquisition debt.  Home equity debt is money borrowed on a home and can be used for any purpose, but it may not be tax deductible or considered acquisition debt.  Acquisition debt is money borrowed to buy, build or improve a principal residence subject to a $750,000 limit.

Assume that the borrower never made a payment on the new loan.   If the new loan went through foreclosure while the Mortgage Forgiveness Relief Act is in effect, the forgiveness would be limited to the acquisition debt of $360,583 and the remaining amount of $39,417 would be considered income and subject to tax.

This article is meant to inform homeowners of liabilities associated with foreclosures and possible remedies that may be available.  This example is meant to illustrate the portion of a loan that could be forgiven.  Taxpayers should always consult their tax professional regarding their specific situation and the way the law would apply to their situation. For more information, see IRS Publication 4681.

Example 
Purchase Price … 5 years ago$400,000
Mortgage at time of purchase … Acquisition Debt$360,000
Fair Market Value … Today, 5 years later$500,000
Refinanced 80% – Loan to Value$400,000
Replaced unpaid balance – current acquisition debt$330,583
Capital improvements made with loan proceeds$30,000
Revised acquisition debt$360,583
Home equity debt … difference in refinanced amount and acquisition debt$39,417

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Re/Max Masters
(801) 821-9292

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Convenience at a Cost

5/13/2020

The convenience of selling your home without the hassle of getting it ready, putting it on the market, showings, open houses, negotiations and repairs comes at a cost … a significant part of your equity. 

The companies, referred to as iBuyers, that buy homes from sellers are for-profit organizations.  They expect to make a profit from sellers who are willing to discount the proceeds they’ll realize as an alternative to the conventional method of selling a home for people who need a quick sale.

The promotions for these companies generally state that you can receive a cash offer in a few minutes after putting your address online.  The discount can be between 10 to 18% compared to normal selling costs from 6 to 9%.   The cost to a person with a $100,000 equity could be as much as ten thousand dollars.

Even after you have accepted an offer, there can be contingencies in the contract that allow the company to inspect the home to discover the condition and reassess the offer to possibly make even more deductions.  If the seller isn’t willing to accept them, the buyer can withdraw from the sale without penalty.

This appears on the surface to be a friendly, accommodating service but it can be an adversarial situation.  The seller wants to maximize their proceeds and the buyer wants to buy it as cheap as possible.

Compare this to working directly with a real estate professional acting as your agent.  They have to put your interests above their own.  They have a fiduciary duty of care, integrity, honesty and loyalty in their dealings with you.  Other duties include confidentiality, disclosure, obedience and accounting to the seller.

In this traditional model, your agent will provide you with the facts of what homes have sold for in the area and their opinion and recommendations on what the most likely sales price will be.  Your agent will provide you an estimate of the sales expenses based on different sales possibilities. 

They can advise you on work to be done prior to putting the home on the market, staging so your home will show at its best and estimate the time it will be on the market.  Based on low inventories in some price ranges, it could be surprisingly short.

As an owner, you made an investment in your home in cash and maintenance.  You are entitled to maximize your proceeds based on the risk taken to purchase a home instead of renting.  The convenience of a quick offer has a cost to it.  You need to compare the two alternatives to see which one benefits you the most based on your individual situation.

For more information, download the Sellers Guide.

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Re/Max Masters
(801) 821-9292

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It Starts Before the Statement is Sent – 5/6/2020

The deadline for challenging your property tax assessment this year may be later than normal due to the stay at home orders but when you are notified, you’ll want to be ready to decide whether you can save some money on property taxes this year.

There are two elements that determine the amount of property taxes you’ll pay for the year: the assessment of value and the property tax rate.  Both determinations occur long before the property tax statement is sent.

Property owners are notified in writing what their assessed value is for the year.  It is estimated that most owners don’t challenge that value even though it could lower their tax bill.  Not all appeals are successful, but many homeowners believe that it is worth the effort to try.  Procedures for challenging the assessment are generally included with the letter and a deadline for filing the challenge.

An initial step is to determine the accuracy of the information on your property’s record such as market value and square footage.  If the record shows a higher square footage than actual, it can cause the value to be higher than it should be.  Even though it may not be required, an appraisal could be proof of actual square footage that shows the square footage and value by an independent party.

Recent comparable sales are used by assessors to determine market value of a property but are usually not identified in the property record.  Property owners can research comparable sales that indicate a lower value and submit them to the assessor’s office either informally or in a challenge hearing.

It is important that the properties proposed to establish the value of the subject property are recent, comparable in size, condition, amenities and in the same area. 

There are companies who will represent the owner to lower their assessment.  The fee charged is usually a percentage of the taxes that are saved.  It is not a complicated procedure and can be very gratifying to make the effort.

Your real estate professional can be a valuable source of information and experience to guide you through the process.  Call me at (801) 821-9292 for more information and a list of comparable sales.

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Re/Max Masters
(801) 821-9292

Contact Me Visit Website Subscribe to Newsletter

One More Reason To Refinance

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Taking cash out of the equity of your home could be a legitimate way to fund a temporary cash crisis now or to have it on-hand if the need arises. Most homeowners can pull out the difference in 80% of the fair market value of their home and what they currently owe.

The most frequently cited reasons for refinancing are to lower the payment, eliminate the private mortgage insurance, combine mortgages, consolidate debt, convert an ARM to a fixed rate mortgage, remove a person from the loan or to take cash out for another reason.

The option of using your equity to deal with unexpected living expenses or potential lost wages in the future could be a good reason for doing a cash-out refinance. It is important to consider that it could increase your monthly payment instead of lowering it which would result in higher expenses during uncertain economic times.

Some lenders have recently raised the minimum credit score requirement but borrowers with good credit and the ability to repay should be able to refinance. Lenders are reporting that during the Covid-19 crisis their processing time is taking longer but they have implemented procedures to safely facilitate the application as well as the appraisals.

While homeowners with an FHA loan are available for a streamline process because FHA is already insuring the mortgage to be refinanced, the cash-out is limited to $500. Even though the owner may not be able to pull funds out of their FHA equity, refinancing may lower their payment and therefore, lower their expenses.

Unlike conventional loans that require income through a job or other sources, refinancing an existing FHA loan does not require income verification or an appraisal. The borrower cannot be delinquent on their current FHA loan and it must be at least six months old. The refinance must reduce the current interest rate or term or both.

Another alternative for homeowners is a HELOC, home equity line of credit, where you do not incur interest expense unless you actually draw on the line of credit. It will be a variable rate home equity loan similar to a credit card letting you borrow up to a specific limit when you want and repay it slowly over time.

Refinancing a home incurs closing costs which can be paid in cash or added to the financed amount. The breakeven point to recapture the cost of refinancing is determined by dividing the monthly savings into the cost of refinancing. If you stay in the home less than that time, refinancing could be an unnecessary expense.

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Gary Thompson

Broker Associate

CRS, SRS, SFR, e-Pro, CNHS, RCC

801-821-9292

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garythompsonteam.com



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It’s Different This Time!

Of course, it is!  We haven’t experienced a global pandemic in our lifetime.  We haven’t had an economic shutdown like this before.  Uncertainty is understandable and people tend to fear what they don’t understand. With all that said, it doesn’t mean there are not opportunities for people who can act in this unprecedented environment.

During the recent Great Recession, housing prices experienced dramatic reductions in value due to the subprime mortgage crisis.  Homeownership in the U.S. peaked in 2004 at 69.2% when lenders with questionable practices would approve almost anyone who applied for a mortgage. 

Since the Great Recession, Congress and the mortgage industry enacted significant rules that require a person to actually qualify based on the ability to pay back the loan, cash and savings necessary to close, the house securing the loan and sufficient credit history.

Both first-time buyers and investors were able to capitalize on opportunities during that recession by acquiring properties at below market prices.  These buyers had good credit, the necessary down payment, income and the willingness to act at the moment.  Interestingly, those prices did not stay depressed for long.

Today, there is a big part of America that has good credit, the necessary down payment and sufficient income to qualify but are in a wait and see posture.  It is understandable that both sellers and buyers across the country are uncertain whether now is a good time for them individually to make a move. 

Consumers should understand the difference in the ability to qualify for a home and the ability to afford and maintain it.  If a buyer is secure with their income and job status, a real estate market with less competition can definitely be an opportunity.

Currently, the homeownership rate is estimated at 65.1% based on the U.S. Census Bureau.  This is only slightly lower than its all-time high.

“The housing sector enters this current recession underbuilt rather than overbuilt” states Robert Dietz, chief economist with the National Association of Home Builders, “that means as the economy rebounds … which it will at some stage … housing is set to help lead the way out.”  Ali Wolf, chief economist with Meyers Research, believes housing will be the hero this time “Last time housing led the recession.  This time it’s poised to bring us out.”

The majority of housing economists don’t expect prices to fall because we’re still experiencing a housing shortage.  Both existing homes on the market and new construction cannot meet the high demand from buyers, some who have been trying to buy and have lost bidding wars.

There is probably an equal number of sellers and buyers who are waiting to see what happens to the economy which will reduce the overall sales.  However, for the sellers who are in the market, their prices may stay solid based on the lack of inventory for the buyers who are staying in the market.

All real estate is local and each market, in its various price ranges have their own current characteristics.  If you would like to investigate how it might affect your decision to buy or sell, now or in the near future, we can arrange a video meeting.  We can provide you with current inventory levels in your area and price range, recent sales and current demand levels.