When a Good Thing is Not Necessarily a Good Thing

I received a very good note today from a local lender and friend that I felt was worth sharing. It's about a new loan program that's out there. Read On!

Always ask the questions………..

In life I have found that when it sounds too good to be true, it usually is.  Like a 95% loan with no mortgage insurance.  Sounds good on the surface……I want that, right?  Why wouldn’t I?  But we are all smart enough to ask the next question and peel back the layers on the onion a bit more. 

What is being “marketed” as no mortgage insurance is really what is referred to as Lender Paid Mortgage Insurance.  All first mortgages that are over 80% (less than 20% down without a 2^nd/HELOC) cannot be sold to Fannie and Freddie (remember those guys are the ones buying 90% of all the mortgages funded throughout the country) without mortgage insurance included.

So how does that “No MI” work?  The lender simply raises the rate a little to get enough credit from the secondary market to pay the MI vs the buyer paying the MI.  Typically the rate on the mortgage is increased about .375% to .625% more than just locking the lower rate with the MI.  There is still MI there folks!  Any lender can do this and we have done it throughout the years depending on the buyer’s individual circumstances.

Sounds simple, I still want it right?  Well wait a minute………….  If my rate is higher to pay the MI fee, when does my rate drop down/off like MI does after my loan is 80% loan to value?  It doesn’t, that’s the big catch.  The rate stays the same for the life of the loan. 

So to keep it simple an example might be your buyer wants to buy a home for $500k and take out a 30 year fixed at $475k. 

·        Let’s say the rate on that is 4.0% with a principal and interest (P&I) payment of $2,268/month + with MI (.41%) of $163 for a total PIMI payment of $2,431/monthly

o   The borrower may be able to request the removal of MI after 2 years, assuming market appreciation on the home coupled with principal paydown of the mortgage through regular payments.  So in 2 years the borrower has paid the loan down on a normal amortization and the home has appreciated so the current mortgage balance is now 80% or less of the current fair market value.  They call the lender and request the removal of MI and now their payment is back to $2,268 for the remaining 28 years of the mortgage.

·        But they opt instead for the No MI loan.  The rate is higher always than a MI loan so let’s use .5% as the average rate increase to get rid of (lender pays for) the MI. 

o   Here the P&I payment is $2,406/monthly + zero MI (it was paid for remember).  This is it for the life of the loan.  No payment drop like in the example above.  Stuck with the higher rate until the end.  That’s $138 more per month for 28 years or $46,368 more for the life of the loan.

That all said, there are times where a buyer can strategically use a “NO MI” loan.  The only way to really know what’s right is for the Loan Officer to use their professionalism and go deep to understand the buyer’s needs and goals.

This is what makes great loan officers great!

	LISA MAZZEI
	Loan Officer
	NMLS ID# 282885
	O. (831) 626-2112 Ext: 104
	C. (831) 212-0170
	F. (831) 250-6233
	E. lisa@blueadobemortgage.com
	W. www.blueadobemortgage.com/lmazzei

Where in the U.S. are properties selling fastest?

In Which States Did Properties Sell Most Quickly in October 2017?

Posted: 30 Nov 2017 06:23 AM PST

Amid strong demand and tight supply, REALTORS® reported that properties that sold in October 2017 were typically on the market for 34 days in October 2017, down from 41 days compared to October 2016, according to the October 2017 REALTORS® Confidence Index Survey.[1]
During the August–October 2017, properties sold in less than 31 days in 18 states and in the District of Columbia, with properties selling most quickly in these areas: Washington (22 days); Nevada (23 days); Colorado (25 days); Massachusetts, the District of Columbia, California, Minnesota, and Utah (25 days), Kansas, Nebraska, Tennessee, and Oregon (26 days); Texas, Georgia (28 days), Indiana, Kentucky, Iowa (29 days), and South Dakota, Wyoming (30 days).

According to Realtor.com data, properties sold most quickly in the metro areas of San-Francisco-Oakland-Hayward (31 days), San Jose-Sunnyvale-Sta. Clara (31 days), and Seattle-Tacoma-Bellevue (37 days). Properties sold quickly within 45 days in other metro areas in California, Washington, Utah, Tennessee, Colorado, Arizona, Idaho, Minnesota, Wisconsin, and Massachusetts.
Amid tight supply, the median days on market have been broadly on a downtrend since 2011 when the properties typically were on the market for three months from May 2011, when this question was first asked in the RCI Survey, through March 2012.

Millennials: Tech-Savvy, First-Time Home Buyers in the Suburbs

Re-posted from National Association of REALTORS

Millennials, buyers ages 36 years and younger, make up the largest share of home buyers by generation at 34 percent of all home buyers in 2016 (down from 35 percent in 2015). This group was born between 1980 and 1998 and is the largest share of buyers for the fourth consecutive year. Sixty-six percent of Millennials are married couples and this age group has the largest share of unmarried couples at 13 percent. Millennials have smaller families—they have the largest share with only one child under the age of 18 years living at home at 22 percent. Overall, 49 percent have one or more children.
Millennials are most likely to rent an apartment (56 percent) or live with friends or family (20 percent) as their previous living arrangement. The primary reason that this generation purchase homes is the desire to own a home of their own at 50 percent and they state that it is just the right time to buy (60 percent).
Millennials account for the largest share of first-time home buyers at 66 percent. This generation primarily buy previously owned homes (89 percent) for a better price (44 percent) and new homes (11 percent) to avoid renovations or problems with electricity and plumbing (48 percent). Millennials account for the smallest share to purchase multi-generational homes at seven percent. When they did purchase multi-generational homes, the primary reason is for cost savings at 34 percent.
Buyers aged 36 years and younger are the most likely to purchase in the suburbs or a subdivision at 57 percent. Equal to buyers 37 to 51 years, they purchase within a median of 10 miles from their previous residence. More than other generations, they purchase homes for the quality of the neighborhood (66 percent), convenience to a job (65 percent), overall affordability of homes (50 percent), quality of school districts (40 percent), convenience to entertainment and leisure activities (25 percent), and convenience to parks and recreational facilities (22 percent).

They have a median household income of $82,000. They purchase the least expensive homes at a median home price of $205,000. This generation of buyers purchase the smallest homes in size at a median square feet of 1,800, equivalent to buyers 62 years and older. They also purchase the oldest homes at a median year of 1984.

Commuting costs are the most important to Millennials, 39 percent said this was very important. Compared to other generations, Millennials are also the most likely to say that they compromised on the price of the home, size of the home, lot size, style of the home, and distance from their job. Millennials have the shortest expected tenure in the home at a median of 10 years, on par with buyers 71 years and over.

More than other generations, Millennials are the most likely to look online for information about home buying and talk with a friend or relative as the first step in their home search process. They are the most likely to find the home they purchased using the internet (56 percent), most likely to frequently use the internet in their search (93 percent), and most likely to use a mobile device to search for homes (86 percent). Finding the right property is the most difficult step for Millennials at 57 percent. Millennials are the most likely to move with life changes (29 percent), move with a job or career change (20 percent), outgrow the home (19 percent), and want a nicer home with added features (10 percent).

Millennials are the most likely to finance their home purchase at 98 percent. The median percent financed is 93 percent, the highest share among the generations. Millennials are the most likely to use savings (75 percent) and a gift or loan from a friend or relative (29 percent) as the source of their downpayment. Buyers 36 years and younger are the most likely to say saving for the downpayment is the most difficult step in the home buying process at 23 percent. Among those who had difficulty saving, 55 percent of Millennials have student loan debt and 32 percent have car loans, more than other age groups. Overall, 46 percent of Millennial home buyers had student loan debt. They are the most likely to use an FHA loan (27 percent) and least likely to use a conventional loan (56 percent) compared to other generations. Millennials are the most likely to feel that their home purchase was a good financial investment at 85 percent.

Real Estate Market Predictions for 2017: If we had a crystal ball…

Most don’t like to predict, but I found an article written by Forbes who polled their “experts”

Forbes 8 points of predictions for 2017:

1.      Home prices will rise, but slowly – slower than in 2016

2.      Inventory of homes for sale will remain low, but there will be a few more than 2016..

3.      Interest rates will be volatile. Expect a rise but not too much, we hope.

4.      Credit availability may improve – maybe. Trump will loosen up on banks, banks may not loosen up on their requirements.

5.      Affordability will worsen: Wages are expected to grow in America's big cities this year, but the share of homes affordable to someone earning the median income is not.

6.      More Millennials will enter the market. At one time it was thought they would never buy.

7.      A Sellers market will remain, buyers competition will increase.

8.      Political uncertainty replaced by policy uncertainty. The Trump effect is unknown and uncharted territory.