Rates Right in Line With Long-Term Lows, But That Could Change on Friday

"Long-term" is a subjective measurement, but in this case, it refers to the the past 7 or 8 months.  Today's mortgage rates dropped to levels that--until 2 other recent days in late December--haven't been seen since May, 2023. In other words, we're effectively at 8 month lows today, even if those lows aren't very different from the lows in late December.

This week's precipitous drop came courtesy of factors other than the slate of economic data.  That's interesting because we'd been eagerly anticipating this week's econ data as a potential source of volatility.  Instead, it was a friendly update from the U.S. Treasury on its borrowing plans (something that can have a big, indirect impact on mortgage rates by altering the supply/demand equation in the Treasury market which then spills over into the mortgage market).

All of the above means that Friday morning's jobs report is our first significant opportunity to see a big move in rates that's driven by economic data.  As is always the case ahead of this report, the reaction could easily take rates quite a bit higher or lower.  It can also thread the needle and keep things fairly flat.  

The market is expecting the job count to drop to 180k from last month's 216k.  A lower number would likely keep low rates intact, and a much lower number would allow for new longer-term lows.  Conversely, a number over 200k would be more likely to put upward pressure on rates.  It's not uncommon for the actual number to come in roughly 100k away from the forecast level.  The farther from forecast, the likely we are to see the big reaction.

By: Matthew Graham

Original Post

 

Lower Mortgage Rates Coax Home Buyers Off the Fence

 

Stabilization in borrowing costs is easing home shoppers’ affordability concerns.

Mortgage rates, which have settled in the 6% range, barely budged this week, giving potential home buyers more confidence to shop for real estate. The 30-year fixed-rate mortgage averaged 6.69%, marking the sixth consecutive week of holding steady, Freddie Mac reports.

“Given this stabilization in rates, potential home buyers with affordability concerns have jumped off the fence and back into the market,” says Sam Khater, Freddie Mac’s chief economist. “Despite persistent inventory challenges, we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace.”

Buyers are already reemerging in the market. Mortgage applications to purchase a home—a gauge of future homebuying activity—are up nearly 8% compared to the week before, the Mortgage Bankers Association reports. “Conventional and FHA purchase applications drove most of the increase last week as some buyers moved to act early this season,” says Joel Kan, an economist at the MBA.

Sales of newly built homes also are on the rise, increasing 8% month over month and 4.4% year over year in December, the Commerce Department reported this week. The construction uptick coincided with drops in mortgage rates at the end of last year. Plus, the latest homebuilder surveys show rising optimism for future sales expectations in the new-home sector, says Alicia Huey, chairperson of the National Association of Home Builders.

“There is no question that 2023 was a rough year in housing, but there are plenty of reasons to see optimism in 2024,” says Jessica Lautz, deputy chief economist at the National Association of REALTORS®. “Lower mortgage interest rates will have buyers and sellers reconsider sitting on the sidelines.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Jan. 25:

30-year fixed-rate mortgages: averaged 6.69%, increasing from last week’s 6.6% average. A year ago, 30-year rates averaged 6.13%.

15-year fixed-rate mortgages: averaged 5.96%, increasing from last week’s 5.76% average. Last year at this time, 15-year rates averaged 5.17%.

bY: Melissa Dittmann Tracey

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$250 million in down payment assistance up for grabs for some California home buyers

 

Between 1,700 and 2,000 lucky lottery winners will receive vouchers that they’ll then have 60 days to spend on a home as part of California's Dream for All program.

SACRAMENTO, Calif. — California will dole out $250 million more in down payment assistance to first-time homebuyers this spring, while making changes to its 1-year-old program aimed at reaching a more diverse group of borrowers across the state.

Last year frenzied homebuyers hoovered up nearly all $300 million budgeted for the California Dream for All loan program in just 11 days. While the new program was wildly popular, some realtors and lenders reported that clients who received the funds were already far along in the home purchase process, fueling speculation about whether the loans were going to people who already could afford to buy homes.

The program’s next round, launching today, keeps the same “shared appreciation” lending model: The state will give first-time homebuyers money towards a down payment — up to 20% of the purchase price or $150,000, whichever is lower — then it will get paid back the loan plus a share of the home’s appreciation whenever it sells again.

This time the California Housing Finance Agency, which administers Dream for All, hopes to head off a mad scramble for the loans by replacing its original first-come, first-serve model with a lottery. 

Homebuyers will have until April to find a state-approved lender and start working on an application. A lottery opens in early April, and buyers will have a month to submit their applications. Between 1,700 and 2,000 lucky lottery winners will receive vouchers that they’ll then have 60 days to spend on a home.

More time to prepare

The extra time to prepare should help Californians who may not be sure if they could buy a home without state assistance, said CalHFA spokesperson Eric Johnson. 

The program is for people for whom homeownership “may be a dream but they’ve got the steady income, they’ve got the decent credit score of above 660 and they’re thinking, ‘OK, wow, this could really make the difference,’ ” said Johnson. “This gives them time to get motivated, to find a loan officer. If they need to do a little work on their credit score or change their debt-to-income ratio, they’ve got time to work with one of our loan officers or brokers.”

The agency will set aside a number of vouchers for each region of the state based on its share of the state’s households. That’s to avoid the geographic disparities that emerged in the program’s first round, in which Sacramento County homebuyers disproportionately benefited but those in Los Angeles County, which represents 25% of the state’s population, received just 9% of loans. 

California Dream for All “was initially conceived of as focusing on higher-cost parts of the state where it’s especially hard to use existing down payment programs, and that was not exactly an unequivocal success,” said Adam Briones, CEO of California Community Builders, which advocates for closing the racial wealth gap through homeownership and helped draft the research that inspired the program.

The state’s red-hot housing market means some Californians who might otherwise be able to afford mortgage payments must struggle to save enough for a down payment. About 55% of Californians own their homes, the second-lowest home ownership rate of any state, behind New York.

Who will benefit?

Dream for All’s backers had hoped it would especially benefit members of communities that have experienced redlining or low homeownership rates, such as Black and Latino Californians. A CalMatters analysis of Dream for All’s first round found that its beneficiaries included a higher share of people of color than exists among California’s current homeowners, but they were still whiter than the state’s overall population.

California law prohibits state-sponsored affirmative action, which poses a challenge for officials trying to design a program that tackles historical redlining without explicitly addressing race, Briones said.

California Dream for All’s new rules include a requirement that at least one homebuyer in each transaction be a first-generation homebuyer, defined as someone who has never owned a home and whose parents also did not own a home, or someone who grew up in foster care. The state also has lowered the income eligibility threshold from 150% of the area median income to 120%, a number that ranges from about $95,000 a year in Fresno County to about $215,000 in Santa Clara County. 

The state plans an outreach campaign beginning in February that will focus especially on Southern California and the Central Coast to let potential homebuyers know about the program, Johnson said. It will include flyers in laundromats, text messages and advertisements on Spanish-language radio and in Black newspapers.

Colette Washington, a realtor in Oakland, said that about a quarter of her clients are first-time homebuyers and she tried to encourage them to apply for California Dream for All last year. But most were confused by the program and procrastinated, she said, and the money ran out before any of them successfully applied. 

Buying a house “is probably the biggest financial commitment most average folks will make in a lifetime and so it’s intimidating,” she said. “Fear is paralyzing.”

This time around, she said, “I personally would like to see the people who really need the money get it first.”

How to apply for Dream for All

So far California Dream for All has survived Gov. Newsom’s budget ax, which fell on some of the state’s other housing programs last week, as the governor proposed clawbacks of unspent funds to solve a budget deficit his office projects will reach $38 billion in 2024-25. 

Created in 2022, Dream for All was originally envisioned as a 10-year, $10 billion investment before lawmakers scaled it back last year.

Californians interested in applying for the program can visit the California Dream for All website for updates or join CalHFA’s homebuyer email list. 

Johnson had one other piece of advice for wannabe homeowners in the state: “Most importantly, don’t give up hope. There is a possibility of owning your own home in California.”

CalMatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

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Mortgage Overlays Explained

 

What’s an Overlay? An Overlay is a mortgage industry term that highlights an additional qualifying requirement(s) beyond what the guidelines issued by Fannie Mae and Freddie Mac. FHA, VA and USDA loans can also have overlays. These guidelines are set forth for several reasons, but one is to provide lenders with mortgage program stability as well as allowing lenders to sell loans, either individually or ‘in bulk.

Think about that for a moment. If there were no secondary market at some point the mortgage company would run out of money to lend. When a lender makes a loan, it draws down some money from its credit line and replenishes that credit line once the loan(s) is sold. This process occurs over and over again. 

Overlays can also be used to target a specific type or class of borrower. To reduce risk, a lender might ask for a greater down payment than is originally required. Let’s look at credit scores as an example. While Fannie might ask for a minimum credit score to be 680 a lender might decide to up the ante a bit and set the minimum score at 700. 

Catering to different groups means catering to a particular market or class of borrower. One lender may continue to stand firm with a 680 score while another decides 700 is better. Many borrowers may not know about this dynamic. This can mean applying for a mortgage at a mortgage company, getting declined and thinking that all lenders are the same and stop their search for a new home. All they really needed to do was to continue shopping for a lender who would approve the very same loan, just without the harsher overlays.

If a lender asks for a 680 score your loan officer will know where to send a loan with a sub-700 FICO. These overlays can be placed on both conventional as well as government-backed mortgages. The government-backed mortgages are those underwritten to FHA, VA and USDA program guidelines. 

Overlays can come and go over time. A lender might set forth a new overlay and then a year later remove it or even enhance it. It’s completely up to the individual lender as long as the loan is approved using established guidelines. What lenders can’t do is weaken guidelines. There are no overlays to drop the minimum score requirement from 680 to 650, for example. Doing so would mean the mortgage didn’t meet program guidelines and the loan could no longer be sold. Overlays help protect the lender while at the same time providing borrowers with additional choices.

Finally, lenders can’t dilute loan program requirements. In other words, lenders can’t apply an overlay to lessen the requirements. Reducing approval requirements means the loan won’t have the minimum features that secondary markets require. If a lender does in fact reduce the requirements the loan can still be made, it’s just that the lender can expect to keep the loan in its own possession for the life of the loan.

WRITTEN BY DAVID REED

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Can You Get a Mortgage with Bad Credit?

The real estate market remains hot right now, despite economic headwinds. Many people want to jump in and buy a home or upgrade their current home to a new one for good reason. Interest rates are incredibly low, so now could still be a buying opportunity, despite limited inventory and high prices in some locations.

If your credit isn’t perfect, you may wonder if anyone will approve you for a mortgage. The short answer is maybe.

You aren’t alone if you don’t have great credit. Around 15% of Americans have a credit score from 500 to 599, which is considered poor. Around 10% of people have credit in the range of 600 to 649, which is considered fair.

When you’re applying for a mortgage, you’re most likely to be approved with a score of at least 650, although even anywhere in the 600s can make it challenging. If your score is below 500, you’re almost certainly not going to be approved for a mortgage, and beyond that, the following are key things to know.

Conventional Mortgages

Conventional mortgages tend to have the strictest requirements as far as your credit score. Freddie Mac and Fannie Mae are two companies offering conventional mortgages. Freddie Mac’s minimum credit score requirement is 660, with a down payment of 3%. Fannie Mae’s minimum score for a 3% down payment is 620. If you make a down payment of at least 25%, you may be eligible for a Freddie Mac conventional mortgage with a credit score as low as 620.

The majority of lenders follow similar requirements, because usually after your loan is closed, the lender will sell it to Freddie Mac or Fannie Mae.

You should be aware that in the eyes of your lender, there’s a difference between having a low score because you don’t have much credit history and having a low score because of bad credit history. You’re likely to be viewed more favorably with limited credit than with bad credit.

If you’re close to the lending cut-off, you should be able to show that you have a debt-to-income ratio of no more than 36%. You will probably also need to show that you have at least two months of cash reserves on hand.

What About an FHA Loan?

An FHA loan may be an option for someone with a very low credit score. You can be approved for these loans with a score as low as 500, but you’ll have to plan to put at least 10% down.

If you have a higher score, you may be able to put as little as 3.5% down.

Aside from VA loans, FHA loans have the least stringent approval guidelines.

As such, FHA loans are often used by people after a foreclosure or bankruptcy.

FHA lenders don’t have to follow the above credit score requirements. They can require that your credit score is higher for approval. Many FHA borrowers have a score somewhere between 650 and 699.

VA Loans

For a VA loan, there is no minimum credit score, but you can only get this type of home loan if you’re an eligible service member in the military, a veteran, or the surviving spouse of a veteran. While there’s no set minimum score, individual lenders can create their own guidelines.

Should You Focus on Improving Your Score?

If you have less-than-perfect credit right now, you might want to focus on building your score. It can take several months, but it’s very unlikely interest rates will go up anytime soon based on what the Fed has said so far. The Fed says they expect rates will stay around zero through 2021 and maybe 2022, although there’s no guarantee.

If you can make even modest improvements in your credit score, not only are you likely to be approved, but you may also get better terms. Focus on paying down your high-balance credit cards, cleaning up any errors, and in the meantime, also try to save for a down payment. If you have at least 10% for a down payment, a lender will see you as less risky.

WRITTEN BY ASHLEY SUTPHIN

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Adverse Possession Laws AKA Squatters Rights (and How One Handyman Fought Back)

 Adverse possession, aka squatters rights, refers to a third party intentionally occupying a property to establish ownership over time – and it’s the bane of many landlords’ existence. Though laws vary by state and county, trespassers who enter a property they don’t own must meet specific requirements to possess the home.

Let’s go over the broad circumstances where a squatter can claim your property, then break down how one handyman saved his mom’s home from a similar fate.

Requirements for Adverse Possession

While each jurisdiction has its own requirements, there are commonly shared overarching benchmarks – including:

Continuous possession of the land/property: The squatter must occupy the property continuously over a set period. Typically, the timeframe sits between five to 20 years.

Hostile possession: The trespasser didn’t lawfully gain possession of the property, such as through a lease or contract.

Open possession: The squatting is not a secret; it’s nearly obvious from the sidewalk.

Actual possession: The squatter must be using the land or property for its intended purpose.

Exclusive ownership: The trespasser behaves as if the property is theirs, meaning they are likely to pay property taxes while using the space.

If a squatter meets all of the stipulations outlined by the state and county, they can assume ownership of the property – leaving the original owner high and dry. That’s why one man took it upon himself to solve his mother’s squatting problem in an unconventional way: by becoming the squatter himself.

Flash Shelton Out-squats Trespassers

Flash Shelton isn’t just the founder of the United Handyman Association – he’s also a good son. After his father passed away and he attempted to sell the residence, he found squatters. Unfortunately, the local police said their hands were tied.

So Flash got creative.

“As soon as [the police] saw there was furniture in the house, they said I had a squatter situation, they had basically no jurisdiction, and they couldn’t do anything,” Shelton told Fox Business. “So, I dissected the laws over a weekend and basically figured out that until there’s civil action, the squatters didn’t have any rights, so if I could switch places with them and become the squatter myself, I would assume those squatter rights.”

As a precaution, Flash had his mother draw up and notarize a lease agreement. Then, he waited for the squatters to leave. Flash arrived at the home around 4 am and saw the squatters leave around 8. At that point, he put up cameras all around and inside the property. Then he changed the locks.

“They didn’t have a lease, so that never came into play. But when they came back, I just laid it out for them, told them that it was all locked up, cameras, and the only way they would get back in the house is if they broke in on camera, and I would prosecute. I told them they had a day to get their stuff out or the furniture was not theirs anymore.”

Flash’s unconventional methodology worked. The squatters left within the day.

When asked why he took this approach, Flash said, “The law would prevent me from physically removing them. However, being that I wasn’t the homeowner, I had more rights. As a tenant, I would actually have more rights than [the squatters].”

Now Flash runs a business offering similar services to other property owners struggling with trespassers. He’s also advocating for legislative change.

“I feel bad,” he said. “I can’t help everyone, but if we can change the squatter laws, I feel like that’s the way I can help everyone.”

While TurboTenant doesn’t recommend out-squatting the squatters yourself, we make it easy for landlords to create customizable state-specific lease agreements in less than 15 minutes. Protect your property by including provisions regarding unwanted guests, holdover tenants, and so much more in just a few clicks!

By: Krista Reuther

Original Post

A Guide to the Mortgage Interest Deduction

 

When you have a mortgage, there’s a deduction you can take on your taxes for the interest you pay on your first $1 million of debt. If you’re a homeowner who bought your home after December 15, 2017, you can deduct interest on the first $750,000 of your mortgage. If you are going to claim a mortgage interest deduction, you have to itemize your tax return.

The following is a guide to what to know about the mortgage interest deduction and how it works.

The Basics

The mortgage interest deduction lets you reduce taxable income by the amount you pay on the interest of your mortgage during the year. If you have a mortgage and keep up your records, you can lower your tax bill. Generally, as mentioned, you can deduct the interest paid on the initial $1 million of your mortgage for a primary or second home. For buyers who purchased after December 15, 2017, you can deduct what you paid on the first $750,000.

What Qualifies?

• If you’re deducting mortgage interest for your primary home, typically, the following will count:
• Your property can be a mobile home, house, apartment, condo, co-op, house trailer, or even a houseboat
• Your home has to be the loan’s collateral.
• The home needs to have sleeping, toilet, and cooking facilities.
• If you get a housing allowance from the military or through the ministry that’s not taxable, you can still deduct the interest for a mortgage.
• A mortgage you get to buy out the other half of your home in a divorce also counts.

If you have a mortgage on a second home, the following will qualify you:

• You don’t need to use the home throughout the year
• The house has to be the loan’s collateral
• If you rent out your second home, you need to be there for the longer of at least 14 days or over 10% of the number of days you rented it out

Points are prepaid interest you can get on a loan. You can deduct your points gradually through the life of your loan, or if you meet certain requirements, you can deduct them at the same time. The eight requirements you have to meet to deduct your points all at once include:

• The mortgage has to be for your primary home
• It’s an established practice to pay points in your area
• Your points can’t be abnormally high
• Your points aren’t for closing costs
• The down payment you make is higher than your points
• The points are calculated as a percentage of your loan
• The points are on your settlement statement
• You use a cash method of accounting on your taxes

If you have a late payment charge that wasn’t for a specific service done in relation to your mortgage loan, you can deduct that. If you pay your mortgage early, you might have a prepayment penalty. You can deduct that penalty as interest.

You can deduct the interest if you have a home equity loan and use it to buy, substantially improve, or build a home. If you use the money for something not related to your home, it’s not deductible.

What’s Not Deductible?

Finally, the things that aren’t deductible include extra principal payments you make on your mortgage, homeowners’ insurance, title insurance, and settlement costs for the most part. Down payments, earnest money, or deposits you forfeit aren’t deductible or interest on a reverse mortgage.

To claim a mortgage interest deduction, start by looking for your Form 1098, which your lender sends in January or the start of February. Form 1098 outlines how much you paid in interest and points during the year. Your lender will send a copy to the IRS as well. If you paid at least $600 in mortgage interest, which includes points, you’d get a 1098.

You’ll need to itemize your taxes rather than taking the standard deduction when you complete your taxes.

When you itemize your taxes, it can take some more time, but if your standard deduction is lower than available itemized deductions, you should do it to save money anyway. You can use Schedule A to calculate deductions, and tax software will take you through the steps.

WRITTEN BY ASHLEY SUTPHIN

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