Category: local updates

Getting Comfortable with the New Normal Mortgage Rates

Gary Thompson ... "Your Utah Realtor!"

The biggest shock to homebuyers is the soaring mortgage rates of 2022 that doubled in one year resulting in approximately 15 million mortgage ready buyers displaced from the market due to affordability issues.

As of February 23, 2023, the 30-year fixed rate mortgage was at 6.5%.  While that is twice as high as it was on January 6, 2022, it is still lower than the 7.75% average rate since April 2, 1971, according to the Freddie Mac Primary Mortgage Market Survey.

When rates increase at a rapid pace like this, it takes time for the public to adjust and begin to accept it as the new normal.

Prior to the housing bust that led to the Great Recession, the normal for mortgage rates was in the 6% range and existing home sales were over 6.5 million for three years.  From 2007 to 2014, home sales were closer to 5 million with 2008-2011 at just above 4 million annually.

From January 17, 2008 to March 5, 2020, mortgage rates averaged 4.32%.  In this 12-year period, buyers experienced some of the lowest mortgage rates ever and became to expect that rates would always be that low. 

Then, during the hardest part of the pandemic, the government took unprecedented actions to influence rates even lower to where they averaged 3.06% between March 5, 2020 and March 17, 2022.

It appears that mortgage rates have peaked in this latest cycle.  In December 2022, the rates came down for four straight weeks following two weeks of slightly higher rates.  The question is what to anticipate for 2023.

The National Association of REALTORS(R) is expecting mortgage rates to be below 6% in the last half of 2023 possibly, 5.5% to 5.7%.  Zillow’s chief economist believes rates will drop to around 5.5% for 2023.  The Mortgage Bankers Association expects that “30-year mortgage rates will end 2023 at 5.3%.”  Fannie Mae forecasts rates will end 2023 at 5.7%.

Relying on the experts, rates are not going to return to the unusual levels during the pandemic or even in the past 12-14 years.  The new normal may well indeed be at the mid-5% level and when the public gets use to it, sales will begin to rise again.

Some buyers may need to adjust their price points because higher payments are directly impacted by the higher rates.  Even if they could have afforded more with the lower rates, that was a missed opportunity.  When the Fed gets inflation under control and the market rebounds from the pent-up demand, another window could be lost.

David Stevens, CEO of Mountain Lake Consulting, and former Assistant Secretary of Housing recently said in a LinkedIn post talking about the housing market in 2023 “So be advised…this may be the one and only window for the next few years to get into a buyers’ market. And remember…as the Federal Reserve data shows…home prices only go up and always recover from recessions no matter how mild or severe.  Long term homeowners should view this market…right now…as a unique buying opportunity.”

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Masters Utah Real Estate
(801) 821-9292
5486604-AB00
Contact Me Visit Website Subscribe to Newsletter

If you’re on the sidelines, at least get ready…

Gary Thompson ... "Your Utah Realtor!"
It's time to get ready

If you’re on the sidelines to buy a home, there are things you can do to be ready when you do get back in the game.

Improve your credit score to qualify for the best mortgage rate available which are reserved for those with the highest scores.  Get a copy of your current credit reports from all three of the main credit bureaus: Equifax, TransUnion, and Experian.  You can get them at AnnualCreditReport.com without paying for them.

While you won’t see a credit score on these reports, you will see a history of your available credit accounts.  According to the Federal Trad Commission, one in five people have at least one error on one of their credit reports which can lower your score or increase the cost or likelihood of receiving new credit.  Identify and correct these mistakes. 

Explain in writing the error in the report and include copies of documents that support your dispute.  Both the credit bureau and the business that supplied the information must correct the information that is in error.  There will not be a fee to correct it.  You can get specific info for the process on each credit reporting companies’ website and from the FTC Consumer Advice.

There is a term call “credit utilization” which describes how much of your available credit on each revolving account is currently being used.  If the limit on one card were $10,000 and you had a $5,000 balance, the utilization ratio is 50%.  Amounts above 30% can negatively impact your credit score even if you do pay the balance each month.

Any delinquent items that may appear on your credit report need to be cleared up.  Regardless of whether there is a legitimate reason, it needs to be explained to the credit bureau.  Beginning in 2023, medical collections less than $500 will no longer be reported on consumer credit reports.

Continue to save for a down payment because mortgages less than 80% of loan-to-value require mortgage insurance which increases the monthly payment.  The exception to the rule is for VA loans which do not require it.  The cost of mortgage insurance could add 0.5% to 2% or more to the payment.

Lower your debt-to-income ratio by paying off installment loans for cars, boats, and other things.

While there are legitimate credit repair services available, you may be able to get excellent advice from a trusted mortgage professional.  You’ll eventually want to be pre-approved before you start looking at homes.  Your real estate agent can make a recommendation to connect you with someone who will get you ready to get back into the game.

Gary Thompson
CRS, SRS, SFR, e-Pro, Broker Associate
Masters Utah Real Estate
(801) 821-9292
5486604-AB00
Contact Me Visit Website Subscribe to Newsletter

Cash-Out Refinance

Gary Thompson ... "Your Utah Realtor!"

With the rapid appreciation that homes have had in the last two years, most homeowners have equity.  A common way to release part of the equity is to cash-out refinance but some homeowners may not be eligible currently.

This type of loan replaces the current mortgage by paying it off and an additional amount of cash for the owner.  Generally, lenders will consider a new mortgage up to a total of 80% of the current value.

Typically, the rate on a cash-out refinance will be slightly higher than a traditional purchase money mortgage.  As is in any lending situation, the rate depends on the borrower’s credit and income.  The best interest rates are available to borrowers with higher credit scores, usually over 740.

Loan-to-value can affect the rate a borrower pays also.  A 70% loan-to-value mortgage could be expected to have a lower interest rate than an 80% LTV because there is a larger amount of equity remaining in the property and therefore, less risk for the lender.

There are no restrictions on how the owner can use the money.  It can be used for home improvements, consolidating debt, other consumer needs or for investment.

Eligibility Requirements as found in FNMA Selling Guide B2-1.3-03 Cash-Out Refinance Transactions

“Cash-out refinance transactions must meet the following requirements:

  • The transaction must be used to pay off existing mortgages by obtaining a new first mortgage secured by the same property or be a new mortgage on a property that does not have a mortgage lien against it.
  • Properties that were listed for sale must have been taken off the market on or before the disbursement date of the new mortgage loan.
  • The property must have been purchased (or acquired) by the borrower at least six months prior to the disbursement date of the new mortgage loan except for the following:
    • There is no waiting period if the lender documents that the borrower acquired the property through an inheritance or was legally awarded the property (divorce, separation, or dissolution of a domestic partnership).
    • The delayed financing requirements are met. See Delayed Financing Exception below.
    • If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six-month ownership requirement. (In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s). See B 2-2-01, General Borrower Eligibility Requirements (07/28/2015) for additional details.)
    • If the property was owned prior to closing by an inter-vivos revocable trust, the time held by the trust may be counted towards meeting the borrower’s six-month ownership requirement if the borrower is the primary beneficiary of the trust.
  • For DU loan case files, if the DTI ratio exceeds 45%, six months reserves is required.”

Let me know if I can be of any help! Sincerely, Gary

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

5486604-AB00 Contact Me Visit Website Subscribe to Newsletter

Skip the Starter Home?

Gary Thompson ... "Your Utah Realtor!"

For generations, people have begun their homeowner experience with a “starter” home.  Part of the logic may be that by beginning with a smaller home, they can learn what it takes to run the home and discover some of the unexpected costs that come along with it.  A slightly longer view into the future could suggest a different strategy.

As of March 4, 2021, the average 30-year mortgage rate according to Freddie Mac was 3.02%; up .37% from the week of January 7th this year.  At the same time, in 2020, the rate was 3.29% and in 2019, it was 4.41%.  That is a difference of 28 and 139 basis points.

The principal and interest payment on a $300,000 mortgage would have been $236 higher two-years ago and $44 more one-year ago.  Today’s low mortgage rates are saving buyers lots of interest especially when you factor in the median tenure for sellers is approximately ten years.  Even though prices have increased over the last two years, some people may be able to afford more now with the lower rates.

Anticipating the future wants and needs now may present some opportunities for preparing for the inevitable.  By purchasing a larger home today, a buyer can lock in today’s low rates and prices to allow themselves room to grow without the expenses of moving.

Each time you sell and purchase a home, there are expenses associated with each side of the transaction.  Purchase costs could be 1.5 to 3% while sales expenses could easily be 2.5 times that much.  These expenses lower the value of your equity. 

Instead of looking at the low mortgage rates as generating a savings from the payment you might normally have to make, consider it an opportunity to purchase more home that will possibly meet your needs for a longer time while eliminating the cost of selling and purchasing in the transition.

Let me know if you have any questions or if I can help you find your next home or Investment!

Much Success! Gary

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

5486604-AB00 Contact Me Visit Website Subscribe to Newsletter

It’s Different This Time!

Gary Thompson ... "Your Utah Realtor!"

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.

Flag Protocol – 5/28/2018 

Gary Thompson ... "Your Utah Realtor!"

The American flag is obviously a symbol of our country but it has come to remind us of every man and woman who has fought for the freedom that we enjoy. The emotions that are stirred by images of our flag can run from happiness to sadness to trust and everything in between.

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Most of us learned American flag etiquette or the Flag Code when we were young but occasionally, it is a good idea to review the guidelines so that the flag is treated with the respect it deserves.

  • The U.S. flag should not be flown at night unless a light is shown on it.
  • The U.S. flag should not be flown upside down except as a distress signal.
  • The flag should never touch the ground.
  • A U.S. flag should be displayed at the peak of the staff unless the flag is at half-staff in mourning.
  • When displaying multiple flags of a state, community or society on the same flagpole, the U.S. flag must always be on top.
  • When flown with flags of states, communities, or societies on separate flag poles which are of the same height and in a straight line, the flag of the United States is always placed in the position of honor – to its own right. No flag should be higher or larger than the U.S. flag. The U.S. flag is always the first flag raised and the last to be lowered.
  • When the U.S. flag is flown with those of other countries, each flag should be the same size and must be on separate poles of the same height. Ideally, the flags should be raised and lowered simultaneously.

More information on flag etiquette can be found at the Veterans of Foreign Wars website.

Assumptions May be an Alternative – 5/7/2018 

Gary Thompson ... "Your Utah Realtor!"

For the last 25 years, most buyers have gotten a new mortgage or paid cash when purchasing a home. For a practical reason, owner-occupant buyers have another alternative: assuming a lower interest rate existing FHA or VA mortgage.29377293-250.jpg

In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. Prior to that, good credit or even a job wasn’t required. The real reason there haven’t been significant numbers of assumptions in the past 25 years is that interest rates have been steadily going down. If a person had to qualify, they might as well do it on a new loan and get a lower interest rate.

Even though mortgage money is currently attractive and available, it is at a four-year high. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages originated in the recent past, it may be more advantageous to assume the existing mortgages.  Conventional loans have due on sale clauses that prevent them from being assumed at the existing rate.

FHA loans that originated with lower than current interest rates have great advantages for buyers and sellers.

  1. Interest rate won’t change for qualified buyer
  2. Lower interest rate means lower payments
  3. Lower closing costs than originating a new mortgage
  4. Easier to qualify for an assumption than a new loan
  5. Lower interest rate loans amortize faster than higher ones
  6. Equity grows faster because loan is further along the amortization schedule
  7. Assumable mortgage could make the home more marketable

This financing alternative can save money for the buyer in closing costs and monthly payments. While the equity may be more than the down payment on a new mortgage, second mortgages are available to make up the difference. Call us at (801) 821-9292 to find out if this may be an option for you.

Costs More – Takes Longer – 4/23/2018 

Gary Thompson ... "Your Utah Realtor!"

The one experience that homeowners can agree upon after completing a remodeling project is that it costs more and takes longer than expected. It doesn’t really matter that you researched, planned, and received multiple bids, it will, invariably, cost more and take longer than you originally anticipated.

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Replacing floorcovering or painting is a project that a homeowner can easily get bids and contract with the workmen directly. A new level of complexity occurs when the project involves more specialized contractors, like plumbers, electricians, carpenters, counters, and others.

Now, a homeowner is faced with dealing with one general contractor who will run roughshod over the sub-contractors or make the decision to do it themselves. Typically, you’ll pay more for a general contractor, but the trade-off is that they have the contacts and experience to make things go smoothly.

Subs are notorious for wanting to finish their “part” of the project and move onto to the next job. Sometimes, they’re not interested in the “big picture” enough to consider doing things in a way that are best for the overall outcome.

When you start tearing out some things, you find out that there may be unexpected expenses involved. Another common occurrence is that during the project, you get a new thought about changing something else “since it is already torn up anyway.” This will add time and money to the job.

There can be the situation that the homeowner doesn’t even know the right questions to ask or what to consider when trying to coordinate the different workers. The most detailed timetable can be thrown off track if one set of workers don’t show up or finish on time. At best, it delays the project for a few days. At worst, it can delay it for a few weeks because the individual workers may have committed to other jobs that don’t allow them to reschedule.

Once the work is done in a professional manner, you’re probably going to live with it for years. If it is something you’ve wanted to do and it will allow you to enjoy your home more, it is worth doing. Just be patient and enter this adventure with the understanding that it will cost more and take longer than you expect.

Waiting Period After Distressed Sale – 4/9/2018 

Gary Thompson ... "Your Utah Realtor!"

“How long do we have to wait to qualify for another mortgage” is the question concerning people who’ve had a foreclosure, short sale or bankruptcy. The loan types for the new loan will differ in amounts of time to heal credit scores based on the event.

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The following chart is meant to be a general guide for how long a person might have to wait. During this waiting period, it’s important that the person be current on all payments and maintains a history of good credit.

A recommended lender can give you specific information regarding your individual situation and can make suggestions that will improve your ability to qualify for a mortgage. This process should be started before looking at homes because of the time constraints listed here can vary based on current requirements and possible extenuating circumstances of your case.

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We want to be your personal source of real estate information and we’re committed to helping from purchase to sale and all the years in between. Call us at (801) 821-9292 for lender recommendations.

Standard or Itemized – 3/19/2018 

Gary Thompson ... "Your Utah Realtor!"

Taxpayers can decide each year whether to take the standard deduction or their itemized deductions when filing their personal income tax returns. Roughly, 75% of households with more than $75,000 income and most homeowners itemize their deductions.

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Beginning in 2018, the standard deduction, available to all taxpayers, regardless of whether they own a home, is $24,000 for married filing jointly and $12,000 for single taxpayers.

Let’s look at an example of a couple purchasing a $300,000 home with 3.5% down at 5% interest. The first year’s interest would be $14,630 and property taxes are estimated at 1.5% of sales price would be $4,500.

The interest and property taxes would provide a combined total of $19,130 which is less than the $24,000 standard deduction. Unless this hypothetical couple has other itemized deductions like charitable contributions that would make the total exceed $24,000, they would benefit more from taking the standard deduction.

If the mortgage rate were at 8%, the combined total of taxes and interest would be almost $28,000 which would make itemizing the deductions more beneficial.

Tax professionals will compare available alternatives to find the one that will benefit the taxpayer most. For more information, see www.IRS.gov and consult a tax advisor.