Uncategorized • November 2, 2023

Is a Home Equity Line of Credit Right for You?

by Suzanne Volkman

You know that you can borrow against the equity that you’ve built in your home, using the funds from home equity loans to pay for whatever you want, whether you’re ready to remodel your aging kitchen or pay off high-interest-rate credit card debt. What you don’t know, though, is whether it makes more sense to take out a standard home equity loan or a home equity line of credit, better known as a HELOC. Which loan product is the better choice?

What are equity loans?

Building equity is one of the main benefits of owning a home. Equity is the difference between the value of your home and the amount you still owe on your mortgage. If you owe $250,000 on your mortgage and your home is worth $375,000, you’ve built $125,000 in equity.

Why does equity matter? If you have it, you can take out either a home equity loan or HELOC that is based on the amount of equity you have. If you have that $125,000 in equity, you might be able to take out a loan or HELOC for up to $90,000, for example. You can then use those funds for anything, though many homeowners will use them to cover major home-improvement projects, to help cover a child’s college tuition or to pay off credit card debt.

But what‘s the difference between a home equity loan and a HELOC?

Home equity loans are typically fixed-rate loans that come with a set repayment term. The money from these loans come in a single lump sum that you pay back with regular monthly payments, with interest, until the loan is paid off.

A HELOC is a bit different; it operates like a credit card with a credit limit based on the amount of equity in your home. A HELOC gives homeowners access to a revolving line of credit that they can draw from when needed.

With a HELOC, you’ll only pay back what you borrowed. For example, if you have access to a line of credit of $90,000 and you then borrow $25,000 to remodel your kitchen, you’ll only pay back that $25,000 that you borrowed.

A HELOC typically comes with two phases. First, there’s your draw period, which usually lasts 10 years. During this period, you can borrow funds up to your HELOC’s credit limit and make interest-only payments. You can also make principal payments on what you’ve borrowed if you choose.

Then there’s the repayment period, which usually lasts 20 years. During this period, you can’t borrow any more money, but instead you must make monthly payments to pay off whatever you borrowed during the draw period.

So, what‘s the smarter choice?

Unfortunately, there is no simple answer to that question. Whether a HELOC is the right choice for you depends largely on what you need money for.

If you need a specific amount of funds for an individual project or goal, such as a home renovation or paying off your credit card debt, a home equity loan might be a better choice. That’s because you receive one lump sum of money that you can use to fund these expenses.

But if you want access to a source of cash that you can use whenever expenses pop up, then a HELOC might be the better choice. Maybe you plan on renovating your home, but you want to tackle a series of projects one at a time. With a HELOC, you can borrow what you need to, say, renovate your kitchen before moving on to borrow more to add a master bathroom.

The best move is to speak with your mortgage lender about whether a home equity loan or HELOC is the better choice for you.

https://newsletter.homeactions.net/archive/full_article/12129/603040/5041928/181218

Home Improvement • October 30, 2023

5 Home Improvement Projects That Will Pay Off in 2024

by Suzanne Volkman

With 2024 on the horizon, many homeowners are seeking ways to enhance their property and increase its value. Whether you plan to sell your home in the new year or simply want to update its style and livability for yourself, strategic home improvement projects can make a significant impact.

Spruce Up the Exterior

First impressions matter – a well-maintained exterior can greatly enhance curb appeal. Start by giving your home a fresh coat of paint, if needed, to refresh its appearance. Also, consider updating or repairing your siding, replacing old windows and adding attractive landscaping to create eye-catching charm in the neighborhood.

Upgrade the Kitchen

The kitchen is often thought of as the heart of the home, and it can have a significant impact on your house’s worth and your comfort. Think about upgrading key features such as countertops, cabinetry and flooring. If your budget allows, replacing old appliances with energy-efficient models can also be a major selling point and save you money in the long run. Additionally, new wall paint, updated light fixtures and a stylish backsplash will create a space where you can enjoy preparing meals and entertaining friends.

Enhance the Bathroom

Bathrooms are another crucial area for home improvements that can influence value. Start by updating fixtures, like faucets, showerheads and towel racks, to create a sleek and cohesive look throughout the space. Consider replacing worn-out tiles or regrouting existing ones to refresh walls and floors. Several DIY cosmetic updates can also produce a big splash and make your bathroom shine.

Create an Outdoor Oasis

Today, many homeowners are valuing outdoor spaces more than ever, and that probably won’t change. Creating a functional and appealing outdoor area can significantly enhance your home’s charm. You might want to build a deck or patio to entertain and host outdoor meals and get-togethers. But why stop there? Add in comfortable seating, install outdoor lighting and consider investing in professional landscaping for an extra living space in the summer months or year-round, depending on your climate.

Make Smart Upgrades

In our eco-conscious society, energy-efficient homes are highly sought after – so consider making earth-friendly upgrades to your property. Replace old windows with double or triple-pane glass windows, add insulation to prevent heat loss and install green appliances. Solar panels can also be a fantastic investment. These improvements decrease energy consumption and appeal to homeowners who want to reduce their environmental impact.

The upcoming new year presents an excellent opportunity to invest in home improvement projects that can boost your property’s value and make your home more comfortable and cost-efficient for years to come.

5 Home Improvement Projects That Will Pay Off in 2024

Real Estate • October 27, 2023

The Big Benefits of Downsizing Your Home

by Suzanne Volkman

If you’re considering downsizing, you’re not alone. Many homeowners are embracing the advantages of living in smaller spaces. Living more compactly can offer a range of benefits, from cost savings to a better quality of life. Explore the advantages of living smaller and learn why it’s becoming an increasingly popular option.

Financial Considerations

One of the main advantages of downsizing is the positive impact it can have on your wallet and finances. By moving to a smaller home, you can enjoy lower mortgage payments, reduced property taxes and decreased utility bills. These savings can free up a significant amount of money, giving you the opportunity to pay off debts, travel, invest or save for the future – tiny houses are fashionable for a reason!

Simplified Lifestyle & Maintenance

Even if you don’t go all the way down to tiny, another great perk of a reduced space is the simplified lifestyle it offers. With fewer rooms to clean, maintain and organize, you can spend less time on household chores and decluttering, and have more time to do the things you love with friends and family. Imagine how a more manageable home could help you find balance and fulfillment in your daily life. There are also great tips available for decorating a scaled-down home so you can still make a more minimal space stylish and inviting.

Increased Flexibility

Downsizing can also provide you with more agility and mobility, which is ideal for avid travelers and explorers. A week or even a month away doesn’t seem as daunting with a smaller property. Since it requires less upkeep, it can allow you to spend extended periods away without worry. Additionally, it can create a more adaptable living environment for retirees or empty nesters, making it easier to adjust to changing circumstances throughout your life.

Environmental Perks

Going smaller not only benefits you personally but also has positive environmental impacts. A more minimal living space conserves resources like energy and water, reducing your carbon footprint. With fewer rooms to heat and cool, you’ll see lower energy emissions and monthly bills. Plus, downsizing encourages a more intentional and mindful approach to consumption, promoting a greener and eco-friendly lifestyle if that’s your thing.

The benefits go beyond simply living in a reduced space. Downsizing allows you to create a home that aligns with your values, offering greater freedom and contentment. So, if you’ve been considering downsizing or rightsizing in the future, take the leap and embrace the many advantages that await. Say goodbye to excess and hello to a simpler, more fulfilling lifestyle.

The Big Benefits of Downsizing Your Home

Buying • October 25, 2023

Do you need a perfect credit score of 850 to buy a home… (nope)

by Suzanne Volkman

If a low credit score is keeping you from buying a home, you’re not alone. Nearly a quarter of Americans under 35 say that bad credit is preventing them from owning a home, according to CNBC’s Your Money survey conducted by Survey Monkey.

What does it take to buy a home? The minimum score needed can be as low as 500, but will ultimately depend on your lender and what type of mortgage you’re applying for.

“The higher your score the better, of course,” Melinda Opperman, Credit.org’s chief external affairs officer, tells CNBC Make It.

To qualify for a conventional loan, the most commonly used mortgage loan, you’ll typically need at least a credit score of 620, Experian says. Some lenders may require you to have a score above 660.

Credit scores range from 300 to 850 and measure how well you’re managing your debt. Here are the credit score ranges that qualify as poor, fair, good, very good and exceptional, according to Experian.

Poor: 300 to 579
Fair: 580 to 699
Good: 670 to 739
Very good: 740 to 799
Exceptional: 800 to 850

Lenders use these scores to determine how risky it would be to lend money to you, which is why having a higher score can help you qualify for the best mortgage rates.

“The score is a measure of risk, so the lower your score, the more risk the lender is taking with you,” Opperman says. “The higher your score, the lower the risk, so a lender will charge you less interest the higher your score gets.”

How your credit score impacts your mortgage

When it comes to mortgages, a higher credit score can save you thousands of dollars in the long run. This is because your credit score directly impacts your mortgage rate, which determines the amount of interest you’ll pay over the life of the loan.

The national average for a 30-year fixed-rate mortgage is 6.98% as of Sept. 20, according to FICO. Your credit score would need to fall between 760 and 850 to qualify for that rate, per FICO’s website. If it does, your monthly payment on a $300,000 loan would be about $1,992, according to CNBC Make It’s calculations.

On the other hand, the average mortgage rate for credit scores between 620 and 639 is 8.57%. With that higher interest rate, your monthly payment would increase to around $2,322 on the same loan, according to CNBC Make It’s calculations.

That difference can really add up over time.

Over the course of 30 years, someone with a mortgage rate of 8.57% would pay an additional $118,714 in interest, compared with someone with the 6.98% mortgage rate, according to CNBC Make It’s calculations.

CNBC Make It’s mortgage calculator can help you understand how different mortgage rates would impact your potential monthly payments and interest charges. (And check out this list of the best mortgage lenders from CNBC Select.)

How to boost your credit score

Don’t panic if your credit score isn’t quite where you want it to be yet.

One option for improving your score before applying for a mortgage is to lower your credit utilization ratio, says Ted Rossman, senior industry analyst at Bankrate.com.

Your credit utilization rate, a measure of how much of your available credit you’re using at a time, plays a big role in how your credit score is calculated. Say you have a $3,000 credit limit and a balance of $600. Your credit utilization rate would be 20%.

To maintain or improve your credit score, financial experts recommend keeping your credit utilization rate below 30%.

Ultimately, you should try to show credit reporting agencies that you can successfully manage various types of credit by consistently keeping your debt low and by paying your bills on time, Rossman tells CNBC Make It.

“Improving your credit score it more of a marathon than a sprint,” he says.

Buying • October 5, 2023

How Much Home Can You Afford … Realistically?

by Suzanne Volkman

If you’re like many Americans, your home will be the most expensive thing you own. It will be a key part of your estate as you plan for the long term. So you need to think strategically from the outset.

To start with, if you want to know how much of a mortgage lenders think you can handle, get preapproved for a mortgage before you start shopping for a home.

What is preapproval? That’s when you work with a mortgage lender to determine how large of a loan that lender is comfortable giving you. To begin, you’ll provide a lender with copies of your last two paycheck stubs, last two months of bank account statements, last two years of tax returns and last two years of W-2 forms.

Lenders will study these forms to verify your monthly income. They’ll also check your credit to determine how well you’ve paid your bills and managed your debt in the past.

Armed with this information, lenders will provide you with a preapproval letter stating how much of a mortgage you can qualify for. For instance, your lender might determine that it is comfortable giving you a mortgage of $400,000.

Once you have this letter, you can shop for homes that you know you can finance. You won’t waste time looking at $500,000 homes if you are only qualified for a mortgage of $400,000.

The good news is you won’t have to pay for getting a preapproval. You only pay a lender after that lender originates your mortgage loan and you sign the closing documents. You also are not required to apply for your mortgage with a lender that has given you a preapproval letter. You can still shop around with different lenders.

But how much are you comfortable paying each month?

Knowing how much a lender is willing to lend you is one thing. Being comfortable with the size of a monthly mortgage payment is another.

Just because a lender will approve you for a mortgage of, say, $375,000, doesn’t mean that you’ll be comfortable making the monthly payments that come with a loan of that size.

Most lenders say that your total monthly debt, including your new estimated mortgage payment, should equal no more than 43% of your gross monthly income, which is your income before taxes are taken out.

Know your budget

But even that is a guideline, and not a hard-and-fast rule. You might not want to spend 43% of your gross monthly income on debt payments. You might feel more comfortable spending 36% or less of your income.

The key is to create your own household budget, listing your monthly expenses and income. Make sure to include expenses that vary each month, such as your utility bills, medical expenses, groceries and gas costs. Include, too, discretionary spending, estimating how much you spend each month on eating out, going to the movies, shopping and other entertainment expenses.

Once you’ve calculated this, you can see how much money you have available to spend each month on your mortgage payment. Be careful not to take out a mortgage that will result in a monthly payment that will consume all your extra cash. You don’t want paying your mortgage bill to be a financial burden each month.

Only you can determine how large of a mortgage payment you are comfortable taking on. Considering the 43% debt-to-income rule and getting preapproved can help you make that decision. But drafting a budget to determine exactly how much extra money you have each month is a key step that you should never skip.

Written by Don Amalfitano

Appraisals • Market Trends • September 27, 2023

Is it 2007 again in the housing market?

by Suzanne Volkman

Ryan Lundquist has some great things to consider in his blog post (linked below). Here are the meat and potatoes of what he had to say:

“Is it 2007 again? There’s so much talk online about today’s housing market being like 2007, but what are the stats showing? Today I want to walk through three parts of the market. I suspect many locations are experiencing the same trend as Sacramento too.

It’s a strange market today with low volume and low supply. It feels a little amateurish to call it weird, but that’s a pretty good description.

THREE WAYS TO COMPARE 2007 & 2023

1) INVENTORY IS NOT BUILDING LIKE BEFORE

One thing that is REALLY different today is inventory is not building like it did in 2007. Supply has actually been subdued in today’s market as sellers have pulled back from listing their homes, and that’s the opposite of what we saw between 2005 and 2008. In fact, when prices peaked in August 2005, housing supply literally tripled in one year in Sacramento. Prices weren’t all that impacted the first year, but in the background, there was a tidal wave of supply building. Look, I’m not trying to sugarcoat today’s market, but we have a different vibe today where supply is not showing 2007 vibes. Granted, this doesn’t mean the market is healthy today. I’m just saying it’s way different.

Housing supply is actually lower today than one year ago. New listings are down 34% from last year and 44% from the pre-2020 normal. Basically, we’re missing 7,700 new listings in the entire region compared to last year and 11,900 from the pre-2020 normal. I don’t have stats for 2007, but do you see what was happening in 2008? Yikes.

2) LOW VOLUME TODAY FEELS LIKE 2007:

One part of the housing market that feels really similar to the previous housing crash is the number of sales happening (volume). In 2005 prices peaked, and while prices weren’t down all that much the first year, the real change was seen in volume falling off a cliff. In real estate it’s easy to obsess over prices, but the real trend is often seen with volume. We’ve basically had the lowest volume we’ve seen through August, so today really does feel like 2007 in terms of volume.

3) COMPETITION DOESN’T SMELL LIKE 2007

The stunning part about today’s market is how competitive it is in the midst of some of the worst volume ever. This is why I often call today a hybrid market. It’s like 2007 volume and 2020 competition gave birth to 2023.

CLOSING THOUGHTS:

First of all, what happened last time isn’t the new template for every future housing correction, so even though I’m ironically writing a post about 2007, let’s remember that 2007 isn’t the new formula for every future downward cycle. With that said, today’s housing market feels like 2007 with volume, but it’s an entirely different beast with low supply, intense competition, and very few foreclosures. Ultimately, it’s not accurate to call this 2007 because it feels so different. Every time someone says it’s 2007, a puppy dies. Okay, that’s probably not true, but we do need to let stats form our narrative.

Though like 2007, we’re in a place where it would be healthy for prices to come down so more buyers and sellers can participate. The reality is sellers sitting back this year has so far catered toward keeping prices higher rather than fostering more much-needed affordability. I know, to some people it sounds like real estate sin for me to say this, but we have an affordability problem, and it’s not a healthy dynamic to see higher prices with lower volume. That’s not good for buyers, sellers, or real estate professionals.

What’s going to happen ahead? It’s impossible to predict the future with certainty since we’ve not had a market like this before. We have ideas for how long sellers might sit out, but the truth is nobody knows for sure. What happens with rates is a huge factor, and rates have persisted to be stubbornly high. No matter what, it’s important to not minimize the struggle of affordability today. In a traditional system low supply can help keep prices higher, but we’re not in a traditional market today, so over time we’re going to find out which is the more meaningful force. Affordability or low supply.

For now, we have a market that feels very stuck with a good chunk of sellers and buyers on the sidelines. It won’t be this way forever, but we seem poised to continue to see low volume and low supply until something changes the trajectory of the trend (rates, economic pain, etc…).

It does feel like 2007 in some ways, but in other ways it’s just so different.”

Check out the full article linked below to view all of his amazing charts and graphs!

Is it 2007 again in the housing market?

Uncategorized • September 22, 2023

Should You Make a Large Home Downpayment?

by Suzanne Volkman

Depending on the loan type, you can qualify for a mortgage with a downpayment that is as low as 3% of your home’s final purchase price. And for some loans — such as a VA loan or USDA mortgage — you don’t need any downpayment at all. But what if you can afford a larger downpayment? It might make financial sense to come up with more dollars.

Low downpayment options

You have plenty of options if you want a loan that requires a low downpayment. If your FICO credit score is at least 580, you can qualify for an FHA loan with a downpayment of just 3.5% of your home’s purchase price. And for some conventional loans, you’ll need a downpayment of just 3% of the home’s sale price.

That’s good if you don’t have a lot of extra dollars to devote to a downpayment. A downpayment of 10% for a home costing $350,000 comes out to $35,000. But with a downpayment of 3%, you’d need just $10,500, a substantial difference.

But what if you do have extra money to devote to a downpayment? Sometimes it makes more financial sense to put up a bigger downpayment than required.

Avoid PMI

When does it make sense to come up with more downpayment dollars? If you are taking out a conventional mortgage and you don’t come up with a downpayment of 20% of your home’s purchase price, you’ll need to pay for private mortgage insurance, or PMI.

This type of insurance protects your lender in case you stop making your payments. The price varies depending on the size of your loan and your credit score. But you could end up paying anywhere from about $125 to $350 a month for PMI on a loan of $300,000.

But what happens if you come up with a downpayment of 20%? You won’t need PMI. You’ll have to determine whether the long-term savings of avoiding those monthly payments is worth more than what your scenario is with a smaller downpayment.

Other benefits of a bigger downpayment

Even if you can’t come up with a downpayment of 20%, you’ll still benefit from a larger downpayment if you can afford to make one.

You’re more likely to get a lower interest rate with your mortgage if you provide a larger downpayment. That’s because you’ve already invested more in your home. When you do that, lenders think that you are less likely to stop making your monthly mortgage payments. This makes you a less risky borrower — and one who is worthy of a lower interest rate.

And that lower interest rate is a nice perk. It could save you hundreds of dollars each month throughout the life of your loan.

You’ll also build equity faster with a larger downpayment. Equity is the difference between what you owe on your mortgage and how much your home is worth. If your home is worth $380,000 and you owe $280,000 on your mortgage, you have $100,000 in equity.

You’ll receive an instant equity boost if you put down more money upfront. And having more equity is a positive: You can borrow against your home’s equity in the form of home equity loans or lines of credit and use the money from these products for anything you’d like. You’ll also walk away with more money when you sell your home if you’ve built up more equity.

Does a larger downpayment make sense for you? That depends. You don’t want to spend all your extra money on a downpayment. You’ll also have to pay for your lender’s closing costs, which can run as high as 6% of your loan amount. You’ll want extra money, too, to pay for furnishing your home or any needed repairs. And it’s never a good idea to leave yourself without enough money for an emergency fund.

But if you do have enough money, putting down more when you take out your mortgage could bring financial rewards. Talk with a qualified financial professional who knows your situation and can give you advice tailored to your needs.

Written by Don Amalfitano

Selling • September 22, 2023

5 Outdoor Projects That Pay Off the Most

by Suzanne Volkman

What pays off the most when it comes to curb appeal?

Ninety-two percent of REALTORS® recommend that sellers improve their curb appeal before listing their home for sale, according to a survey from the National Association of REALTORS® and the National Association of Landscape Professionals. What pays off the most when it comes to curb appeal? Of course, every project and every market is different, but here’s the estimated cost recovery on the top outdoor remodeling projects identified in the 2023 Remodeling Impact Report. Cost estimates are from landscape pros; cost recovery estimates are from REALTORS®, members of NAR.

1. Standard lawn care service: 217% (percent of value recovered)

Project: Complete six standard seasonal applications of fertilizer or weed control on 5,000 square feet of lawn.
Cost estimate: $415
Estimated cost recovered: $900

2. Landscape maintenance: 104%

Project: Mulch, mow, prune shrubs and plant about 60 perennials or annuals.
Cost estimate: $4,800
Estimated cost recovered: $5,000

3. Outdoor kitchen: 100%

Project: Install an inset grill, stainless steel drawers, ice chest sink and concrete countertop with veneered masonry stone.
Cost estimate: $15,000
Estimated cost recovered: $15,000

4. Overall landscape upgrade: 100%

Project: Install a front walkway of natural flagstone; add two stone planters, five flowering shrubs and a 15-foot-tall tree.
Cost estimate: $9,000
Estimated cost recovered: $9,000

5. New patio: 95%

Project: Install a backyard 18-by-16-foot concrete paver patio.
Cost estimate: $10,500
Estimated cost recovered: $10,000

Buying • September 21, 2023

6 Ways Your Buyers Can Save on Their Mortgage

by Suzanne Volkman

With rates around 7%, home buyers are feeling the financial squeeze. Here are a few secrets to ensuring that you get the best deal that you can on your loan.

Although mortgage rates, which have been hovering near 7% over the last few weeks, are expected to fall in the second half of the year, home buyers have adjusted to higher borrowing costs and home prices. Still, affordability is a big issue: 60% of U.S. cities saw gains in home prices in the second quarter, according to data from the National Association of REALTORS®. And the median monthly mortgage payment for a typical existing single-family home is $2,234, factoring in this week’s 7.09% average mortgage rate.

However, there are ways buyers can save on their mortgage. Buyers are eligible for the lowest mortgage rates from lenders when they come with a stellar credit score, particularly above 740. But there are additional ways to save, including:

1. Shop around for a loan. Gathering multiple mortgage rate quotes from lenders can pay off. A recent study from LendingTree(link is external) shows the average borrower could save $84,301 over the life of their loan by shopping around for a mortgage. Broken down further, borrowers could save $2,810 a year and $234 a month.

Borrowers who receive two rate offers from different lenders could save an average of $35,377 over the life of their loan, while borrowers who gather more than five offers could save an average of $105,912, the study finds. “Different lenders have different standards and criteria that they look at when deciding who to lend to,” says Jacob Channel, LendingTree’s senior economist. “It’s for that reason that different lenders can offer such drastically different rates to the exact same people.”

When shopping around, says Brandon Snow, executive director of Ally Home, buyers should compare interest rates, terms and additional fees—not just who has the lowest mortgage rate. Also, shop around by gathering quotes from mortgage bankers, regional banks, credit unions and national banks.

2. Negotiate. While 63% of home buyers say they have negotiated for home price reductions, only 39% of buyers say they’ve tried to negotiate the initial APR or refinance rate on their most recent home purchase. Yet, those who’ve tried to negotiate on their mortgage have found an 80% success rate, according to a separate study from LendingTree.

Thirty-eight percent of buyers negotiated on closing costs, which are the fees lenders charge to process a loan. “Different lenders often have varying levels of flexibility in negotiations, but it never hurts to ask,” Snow says. “Leveraging quotes from competitive lenders may show your lender that you are seriously considering your options but are open to negotiation to keep your business there.”

3. Buy down the mortgage points. Borrowers may want to consider buying down points—typically done in 0.25 increments—to reduce the interest rate on a loan. But that means paying more upfront at closing. Mortgage points are the fees borrowers pay a mortgage lender to reduce the interest rate on the loan, which then lowers the overall interest paid on the mortgage.

Bankrate uses the following example of how this might work: A borrower has a 7% mortgage rate on a $320,000 loan, with a monthly payment of $2,129. The borrower purchases points to get the mortgage rate to 6.5%. That costs him or her $6,400 at closing and lowers the monthly mortgage payment to $2,022—a $107 difference.

Financial experts caution that when buying down points, it can take time to recoup the savings. Lenders can help calculate the break-even point to see how long you’d need to stay in the home to make it worth paying the upfront costs.

4. Ask for discounts. If you are already an existing customer who banks with a lender, ask about “relationship discounts,” Snow suggests. For example, some lenders like Chase Bank may waive a loan processing fee if you have a minimum amount of existing money deposited or in an investment account. U.S. Bank offers up to 0.25% off the loan amount in closing costs, up to $1,000, for those who have a personal checking account with them.

5. Be aware of float-down policies. Mortgage rates can fluctuate over the course of the closing timeline, and every swing can make a difference. “Many lenders will also allow you to adjust your rate downward if there are significant changes in the market rate while you are in the process,” Snow says. “Proactively asking about float-down and renegotiation policies upfront will ensure you know the requirements to get your rate reduced from the get-go and protect you from paying a higher rate than you should.”

6. Consider the mortgage terms. The 30-year fixed-rate mortgage is the most commonly used type of loan, but some lenders may offer even longer terms, like 40-year mortgages. Borrowers may be able to save around $100 on their monthly mortgage payment by extending their mortgage term—but that means they’ll pay significantly more in interest over the life of the loan. In May, the Federal Housing Administration announced a 40-year option for borrowers experiencing a financial hardship who need a loan modification.

Lenders may be able to offer other types of loans to help borrowers lower their monthly payments. For example, adjustable-rate mortgages have been surging in popularity as 30-year rates edge higher. ARMs accounted for nearly 19% of single-family mortgages in the spring, although they remain below pre-2008 levels, according to CoreLogic data. ARMs tend to offer a lower introductory interest rate, but they will reset to current rates in five or seven years, depending on the terms.

For home buyers who may be trying to “time” the market and snag the best interest rates, real estate has adopted a new mantra: “Marry the house; date the rate.” As the phrase implies, buyers may be better off committing to the home they love long-term, regardless of current rates, and refinancing later should interest rates ever drop.

Written by: Melissa Dittmann Tracey

Buying • Market Trends • September 7, 2023

Assuming a loan.. Is it worth it?

by Suzanne Volkman

Local Appraiser, Ryan Lundquist, has recently posted his thoughts on this matter. Read on to see what he thinks about the topic of assuming a loan in today’s real estate market climate.

August 29, 2023 By Ryan Lundquist

“Assumable loans are eye candy in today’s housing market. The idea of taking over somebody’s 2.5% loan sounds amazing, right? It’s technically possible on paper for some loan types, but it’s challenging to pull off in the real world. Yet, if mortgage rates remain high, this is something we’re likely going to hear more about, so it’s important to know the process.

IT’S RARE TO ASSUME A LOAN (FHA, VA, & USDA)

I’m not a loan officer, so I won’t step out of bounds here, but it’s basically possible to assume an FHA, VA, or USDA loan from a current owner if the loan servicer is cooperative and everything else lines up between the buyer and seller. Conventional loans are NOT assumable, but I’ll defer to loan officers if there are rare cases where that can happen (seriously, talk to a loan officer). In short, it has to be the perfect storm of the right buyer, right seller, and right loan servicer to make an assumption happen.

UPDATED NOTE: A few people have said current FHA loans are not assumable, but everything I’m reading online from lenders and HUD directly seems to show FHA loans are assumable. My advice? Talk to a loan professional and the loan servicer. I defer to them.

HOW MANY LOCAL LOANS CAN BE ASSUMED?

Here’s a snapshot of FHA & VA transactions since 2009 in the Sacramento region. Of course, some of these properties have sold again already, but this is a general picture of how many potential assumable loans are out there. The real prize for a buyer would be purchasing from a seller who bought during the past few years when rates were really low (though many of those owners are sitting instead of selling).

WHAT PERCENTAGE OF THE MARKET IS ASSUMABLE?

Okay, but what percentage of the market has sold in recent years with loans that could theoretically be assumed in the future? In 2020 nearly one out of every five homes sold with FHA or VA, and since then it’s been about 15% of loans.

A LOCAL LISTING EXAMPLE

Here’s a property in West Sacramento that was purchased in 2020 with FHA financing, and the listing advertises, “Seller offering a possible loan assumption at 2.75% as part of purchase price.”

BIGGEST HURDLES TO ASSUMING A LOAN:

1) Paying the difference: The buyer has to pay the difference between the loan amount and the equity the owner has. This means if a property has a $400,000 loan, but it’s worth $525,000, there is a big chunk of change for the buyer to bring to the table. Some loan officers tell me it’s possible to get a HELOC (Home Equity Line of Credit) to pay the difference, but I’ll defer to lenders on that. All that said, it seems like buyers putting 20% down are often decent candidates to assume a loan because they can absorb the difference between the loan and value in many cases.

2) It can take a long time: I mentioned loan assumptions in a Facebook thread a few days ago. I heard about one local loan assumption taking FIVE MONTHS, another taking three months, or a quick one at 30 days. Look, maybe this process can be seamless once in a while, but can you imagine being in contract for five months without a guarantee of success? That is going to take a very particular seller and buyer, right? Moreover, if there are multiple offers, the seller is unlikely to choose the buyer wanting to assume the loan. This reminds us market conditions can either foster more or less loan assumptions.

3) The loan servicer isn’t always cooperative:

There are situations where the loan servicer simply denies the loan assumption. One real estate agent told me loan assumptions are basically a buzzword because they’re difficult to pull off. Sounds about right.

THIS MARKET REQUIRES CREATIVITY:

There is no sugarcoating assuming a loan as an easy process, but I think this market requires creativity. My advice is to understand the process, advertise the idea of an assumption if the seller is on board, talk to the loan servicer prior to listing, and help educate everyone on the process. Oh, and realize this is still a unicorn event that requires the perfect storm of everything coming together. This isn’t for the faint of heart, but it will work in some situations.

CLOSING ADVICE:

My advice? Don’t put much hope in loan assumptions, but know how it all works so you can at least be aware of options. Like I said, it’s going to take the right buyer, right seller, informed real estate professionals, and a cooperative lender. When loan assumptions do happen locally, try to find out how the deal came together. The truth is buyers are starving to afford the market, and assuming a seller’s loan is going to help a small sliver of buyers out there. Ultimately, if rates remain high, this is going to be something more people are thinking about, and it’s possible we could see more loan assumptions ahead for that reason. If the market gets more competitive though, loan assumptions are the last thing sellers are going to target.

I hope this was helpful. Thanks for being here.”

Follow Ryan for more information about the Sacramento Valley Real Estate Market. He can be found across all social media platforms, as well as at his blog: https://sacramentoappraisalblog.com/

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