Mortgage Newsletter Spring 2024
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- Economy & Mortgages: Rates Finally Easing: Is Now the Time to Buy?
- Higher Conforming Loan Limits Creates Opportunities in 2024
- The Best Mortgage? It's Not Always What You'd Expect.
- Clash of the Generations: Millennials vs. Downsizing Boomers
- What's a Non-Warrantable Condo? And Can It Be Financed?
Economy & Mortgages: Rates Finally Easing: Is Now the Time to Buy?
Higher Conforming Loan Limits Creates Opportunities in 2024
The FHFA’s conforming loan limit increase is based on a formula using home-price data in the third quarter of each year. Coming into 2023 we saw an increase of 12.21%. Housing prices nationally have risen at a slower pace in the face of higher interest rates, but still faster than the historical average.
Accordingly, for 2024, the baseline Conforming loan limit for mortgages backed by Fannie Mae and Freddie Mac will rise by 5.5%. For 2024, the maximum Conforming loan is $766,550 in most markets, and up to $1,149,000 in high-cost markets.
This annual increase can enable homeowners with “smaller” Jumbo loans to refinance into a Conforming loan, at often-better mortgage rates. It depends on when you got your old loan, it’s size, and the particular loan terms you have.
There’s only one way to find out - - give us a call to see how we can potentially reduce the cost of your home financing!
The Best Mortgage? It's Not Always What You'd Expect.
Despite doom-and-gloom headlines about high interest rates and tight supply, throughout 2023, millions of homes were still bought and sold, nationwide. As mortgage professionals, we spend hours comparing options to find the most affordable financing for our clients.
The key metric we focus on is not the rate, and not the term, but the total interest cost of financing over the expected time our client actually anticipates staying in the home, or in the loan, rather than the official loan term of 15 or 30 years.
We also strategize on the right downpayment amount -- while borrowing less reduces the interest you pay over the life of the loan, the opportunity cost of tying up money in a down payment (versus, say, investing it elsewhere) may be a major consideration.
Finally, we look at upfront costs and expected cash flows, how they relate to your expenses, and whether you might consider prepaying the mortgage aggressively to save more interest.
While many buyers of course fit the standard 30-year fixed rate mortgage just fine, here are just some of the other choices clients have made:
Rate Buydowns – This has been a popular option over the last year. For an upfront cost, there are usually options to reduce the rate for 1-3 years, or permanently. This usually works great for folks who know they’ll be in the loan for awhile, since the interest savings gradually recoup the upfront cost.
Hybrid Loans with Fixed Initial Periods – For clients with shorter “expected terms”, hybrid adjustable-rate mortgages with five-year or seven-year fixed periods may match their financial plans better. The rates on these can be lower than a standard 30-year fixed rate loan.
Fifteen-Year Fixed Rate Loans – With its significantly lower lifetime interest costs, this loan still makes sense for people with good cash flow.
Low-Downpayment Loans – These are perfect for getting into the market with little or no money down -- with conventional options as low as 3% down, FHA options at 3.5% down, and VA loans requiring no money down. It usually pencils out better to get in and enjoy home appreciation than to stay on the sidelines and watch prices (and your rent) rise while trying to amass 20% down.
Renovation Financing – Different than construction loans, these loans are federally-backed and let you add the cost of renovation (say, to fix a worn roof, or upgrade windows, floors, etc.) to the value of the home, and borrow an amount that covers the upgrade as part of the purchase of the home!
Right now these are fantastic solutions to the limited-inventory situation we’re seeing. You can buy an unloved property (sometimes for a nice discount) and make it your dream home – all in one go. And eager sellers will sometimes sweeten the deal in the process!
Programs for non-traditional buyers and investors – There are a wide range of programs for self-employed borrowers, business owners, investors, and other non-traditional borrowers.
Whatever you wish to accomplish in real estate in 2024, we can match you with the loan that best helps you achieve those goals, and at the lowest possible cost.
Clash of the Generations: Millennials vs. Downsizing Boomers
The knock on the Millennial generation has always been a lack of material aspirations -- collecting experiences rather than “things.” Until recently, this seemed to extend to homeownership as well: fewer Millennials owned homes as they turned 30 than previous generations had (42% for Millennials, vs 48% for Gen X, vs 51% for Boomers).
The reasons behind this may have been more economic that philosophical. Many came of age during the global recession. “The economic hardships encountered at the start of their adulthood, coupled with student debt, resulted in Millennials reaching homeownership later than other generations,” said Alexandra Both, a research analyst at the apartment list site RentCafe.
But Millennials are now catching up. The average age of Millennials now matches the average age when people buy their first home, and they are putting intense pressure on the housing market.
Ironically, COVID-19 has helped to boost Millennial homeownership rates. Student loan payment pauses and stimulus checks helped people’s finances. The work-from-home wave also made more-affordable, outlying communities popular. Buyers benefited from record-low interest rates. Now, in a generational head-on clash, Millennials are competing for homes with Baby Boomers, many of whom are downsizing into the same size properties Millennials hope to buy!
Real estate industry analyst Meredith Whitney describes a “Silver Tsunami” of 10,000 Baby Boomers turning 65 daily as a challenge for Millennials. Whitney cites AARP data that “[about] 51% of people over 50 downsized their home. And people over 50 are 74% of total U.S. homeowners. So, if you just take half of that, you’ve got about 30 million homes that should be coming on the market.”
“Should be...” is the key phrase. Multiple analysts point out that many Boomers are retiring in place, which freezes inventory. And others (as mentioned on page 1) are pulling equity out of their old home, using it to downsize, and renting out their old home.
That takes a home out of the homeownership column and puts it in the rental column – certainly not good news for would-be Millennial homebuyers. We have clients going in both directions, of course. Whatever your plans, we look forward to leveraging our expertise and extensive loan options to help you achieve your current homeownership goals, or those of your family members!
What's a Non-Warrantable Condo? And Can It Be Financed?
Condos are a natural option for many people, especially with home prices continually rising. If you're on the hunt for a condo, you may run across “warrantable” or “non-warrantable” properties.
Before you fall in love with a condo, it’s a good thing to check, since it will affect the range of financing options available. In a non-warrantable condo, you can’t access Conventional, FHA, VA, or USDA mortgages, so we have to find specialized programs. These can require larger down payments and potentially higher interest rates.
Four key factors drive warrantability:
- Building ownership: A single person or entity cannot own over 20% of a complex’s units, otherwise a complex’s financial health is too dependent on the financial well-being of a single owner.
- Occupancy types: If over 50% of the units are investment properties (which often are less well-maintained), or over 35% is commercial space, that complex may be considered non-warrantable.
- Financial reserves: To be warrantable, the homeowners’ association must allocate at least 10% of its dues to a reserve for maintenance and emergencies, and less than 15% of owners must be in arrears.
-Legal risk: A condo building may be non-warrantable if the complex or its developer is involved in litigation, especially if the matter involves building safety, structural soundness, and habitability.
A non-warrantable condo can still be a great investment, but it’s key to be aware of the financing hurdles. We can help you size those up and make a great decision.
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