VIDEO – 6% Rates Mean HOPE Ahead For Market

This 6-6-6 sign is indeed a great omen for buyers!

Back in September, I explained in a video post the troubles ahead for our market as 30-yr mortgage rates hit 7% for the first time in 20 years.  Homes were becoming increasingly unaffordable as high rates and home values squeezed many would-be buyers out of the market.

Thankfully, some balance has been restored as both rates and values have receded, meaning there is now hope ahead for the market.  Today I want to walk you through some points to see how today’s affordability is back in line with historical norms, and why if you are a buyer you should be getting excited for a home purchase in the year ahead. Either click on the video above or read below for the full insight.

First a brief history overview…over this past summer, annual inflation was running at over 8% and consistently higher than market forecasts. There seemed to be no end in sight for price increases everywhere, including rates for mortgages.  As a result, mortgage rates skyrocketed from 5% to nearly 7.5% in 2 months. 

That’s when I did my last post on this topic to sound the alarms about housing becoming increasingly unaffordable.  I compared the present market to the last time rates hit 7% in 2002 and the last time home values peaked in 2005 to show today’s market was less affordable than either of those eras.  This was gauged by the percentage of income going to buying a median priced home by a household earning median income.

I illustrated how either home values would need to fall 21% or rates drop to 4% for the market to come back in balance, and I ultimately forecasted that we would see decreases in both in the months ahead.

That projection has mostly played out, largely thanks to inflation readings falling faster than expected.  Mortgage rates have slid back down to 6% and home values have dropped another 9% since August. 

The US Census Department also recently released an updated estimate for Sacramento household median income, which saw an expected increase due to inflation pressures as well.

When accounting for these market changes, the percentage of income going to a mortgage payment is no longer at record highs.  In other words, we should not expect home values to continue to fall due to affordability issues.  Now, will they still fall anyways?  Perhaps they do still fall a bit further because markets don’t always act logically and predictably.  

But that’s all the more reason if you’re a buyer and have been waiting to purchase to jump back in the market.  These stats show support for current market values, and the short-term projection is for mortgage rates to remain at or below 6%.  Many sellers are panicking as the average listing is on the market for 6 weeks and selling for 6% off their asking prices. 

These 3 sixes are a literal jackpot sign for buyers entering the market.  Thru January we’ve seen signs of the market picking back up and home prices stabilizing, so buyers should feel confident getting out there and ahead of the spring time rush. 

Let my team and I help you get pre-approved for financing, find the right home in your area that meets your budget, and negotiate a deal for you in this buyer’s market.  We’re here to help you from start to finish, so please reach out with any questions and interest you have on buying a home now or in the future.

Matt’s 2023 Real Estate Market Forecast

Expect more sales, lower rates, and bottoming home values

2022 was a rough year for the real estate market.  Interest rates and home values both changed course at the fastest pace on record, causing many potential buyers & sellers to hit the pause button on their transaction efforts.  As we enter a new year, sellers likely have been waiting for the rain to finally end to list their homes, while buyers have been waiting for lower rates and home values before jumping back in the market.  Will the current “bear” real estate market end?  Will a “bull” market return?  Read more as I share my insight on what’s ahead for our market (& read all the way to the end for why they are called bear & bull markets!)

The bear market will come out of hibernation (but don’t expect a bull market to return)

Most regions throughout California have become “bear” markets, meaning home values have fallen consistently and considerably.  Take Folsom, for example, where the average home price fell 25% from May to December.  That’s a sobering statistic for current home owners considering selling, but keep in mind the current values are still higher than they ever have been if you exclude the insane Covid-related boom. These recent declines are largely due to higher interest rates and hesitant home buyers, but also because of SIGNIFICANTLY fewer home sales.  To be precise, the 4th quarter (October-December) was the slowest quarter in over 20 years in Sacramento County, with fewer than 30 homes selling per day in a county comprised of over 600,000 housing units!

Average Folsom home prices over the last 15 months. From the May high of $959,000, the average home price has plummeted to $721,000 (nearly 25%) in only 7 months!

Expect the market to pick back up in 2023 as more sellers put their homes up for sale and buyers eagerly purchase them.  Affordability has improved due to declining home values, thus inspiring first-time home buyers to get back into the market.  After 3+ years of competitive bidding wars and few homes for sale, buyers are now calling the shots in transactions.  The typical listing is selling for 6% less than the asking price, with sellers often paying credits towards closing costs and home repairs.  Many buyers will score great bargains on homes this year, but they shouldn’t expect rapid price appreciation to return to the market just yet.

Interest rates will settle down (but don’t expect record lows to return)

Interest rate declines are also helping affordability.  Yes, you read that right…interest rates are going down!  After peaking at nearly 7.5% in October, 30-yr fixed rates are settling down near 6% in recent days, and likely poised to drop further in the months ahead (more on that in a future post). 

While rates aren’t likely to plummet back to 3%, 30-yr rates in the ~5% range will help to stabilize the real estate market and reduce the sting buyers feel when calculating their monthly payments.

Sacramento home values will bottom out (but don’t expect big price gains to return)

The worst is likely behind us with falling home prices.  After dropping 2-3% per month since May, Sacramento area home values should find a bottom sometime this year.  Rent rates remain high everywhere (1-bedroom apartments are renting for over $2,000/month!), which will help prop up home values as tenants weigh the options between renting and buying.  2023 buyers may risk some short-term losses in equity, but that is a small risk to take for the big rewards of purchasing a home in this strong buyer’s market.  After 6 months of price drops, the average listing is on the market for 6 weeks & selling for 6% off the asking price.  These 6s may be a troubling sign for sellers, but for buyers it’s a proverbial jackpot! Get out in the market and let me help you dictate the terms of your next home purchase!

2023 will feel like an awakening after a dormant second-half of last year.  If you are a seller, you need to make worthwhile preparations to your property to make it stand out above the competition. If you are a buyer, you need to “start your engines” and follow my top 5 tips from my prior post to get ready to decisively act when the right home comes up for sale.  Both sides need to be partnered with an experienced mortgage and real estate broker like me who can navigate you through this changing market.  I look forward to helping more clients in the weeks ahead prepare for their 2023 transactions.

PS – Bull & Bear markets earned their names based on how these animals attack. A bull lowers its head and then surges its horns upwards in an attack, hence why a bull market is known as one that is on the upswing. Bears, however, get high and then attack down with their giant paws. When a financial market (like today’s real estate market) is going down in value, its known as a bear market. Now you know!

Home Buyers, Start Your Engines!

After spending this year on the sidelines, buyers should be revving up for a purchase in the new year

2022 was an unprecedented year for the real estate market.  Interest rates and home values both changed course at the fastest pace on record, causing many potential buyers to hit the pause button on purchasing a home. 

As we approach the end of the year, much of that market volatility is now hopefully behind us.  Home values have leveled off over the last 60 days after dropping ~12% since spring time, and 30-yr fixed interest rates have slipped back below 6% on growing reports of moderating inflation.

Presently, buyers remain hesitant. In November, fewer than 1,000 homes sold in Sacramento County; the lowest November tally since 2007.  Its likely that buyers won’t fully reengage till after the holiday season, but I think potential buyers should be “revving” their engines NOW in preparation for a 2023 home purchase. 

I anticipate a very active start to the new year as home values and interest rates continue to normalize.  Its imperative that if you are considering an upcoming home sale or purchase that you get your ducks in a row now.  Here are 5 things I can help you with NOW to best prepare for an upcoming home purchase:

#1 – Get Acclimated to Market Stats and Trends

Knowing your numbers will help you to confidently negotiate with a seller. Not all neighborhoods are following the general market trends, so work with a professional to know what’s going on in your areas of interest.

#2 – Get Pre-Approved

Knowing what you can afford & understanding your financing options will keep your home search focused & realistic.

#3 – Get Your Financial House In Order

Identify errors on your credit report & oddities on your bank statements that may need attention to make the underwriting & escrow processes easy and predictable.

#4 – Get Your Actual House In Order

Do you need to sell your old home to buy a new home?  Sale-contingent offers are more common-place in this current market.  Its important to tackle necessary fix-it projects now so you can quickly list your home for sale when you find your next home to buy.  Don’t know which projects to focus on?  We can help!  Even if you are a first-time buyer, knowing your lease terms & getting non-essentials boxed up ahead of time will help you plan your home purchase accordingly and make the process less stressful.

#5 – Get Real With Your Needs & Wants

Its inevitable that a home purchase will require some form of compromise (with your partner, your budget, or both!).  Have a written list of what is most important to you & your family in your next home.  Having a clear vision & set of priorities will help you be decisive when the right home comes along.

2023 will be one of the strongest “buyer’s” markets of the last decade. Buyers will have the advantage over sellers when negotiating price and other terms.  As a broker with over 20 years of experience, I have seen that the best deals go to the clients who are prepared and calculating when buying a home.  Don’t let your emotions and impulses drive the process; follow my 5 starting tips now and call on me and my team to help navigate your next home purchase.

-Bobby

Success is where preparation and opportunity meet.”
-Bobby Unser, race car driver

UPDATED – Got Debt?  You Are Not Alone

It may be time for a cash-out refinance, but time is running out to get the best terms

Total US household debt continues to climb even as borrowing costs rise with higher interest rates, particularly on credit cards. The total debt level recently hit a record amount of $16.5 trillion…with a T!!! 

While over $11 trillion is attributed to mortgage debt, that leaves $5 trillion in car, student, and credit card loans. By my account, that averages to more than $40,000 per household in consumer debt!  Many of us are facing harder times with the on-going economic slow down along with surging gas and food prices. With credit card balances & their interest rates at all-time highs, it may be time to consider a cash-out refinance to consolidate high-rate loans

Home values remain reasonably resilient & most homeowners have record levels of home equity. At the same time, mortgage rates are settling down, with our best-priced lenders back in the 5s on 30-yr fixed loans. 

Has the economic slowdown forced you to borrow more against credit cards, cars, and education? Borrowing from your equity at a low rate to pay off higher rate debt will lower your overall monthly payments and lower your interest costs over the long-run. I can help you determine the “blended rate” of your various debts, the effective interest rate you’re paying across all of your loans (including your mortgage). If your blended rate is over 5%, then its time to consider a cash-out refinance.

Consider the following graphs…according to CreditCards.com the national average credit card interest rate is nearly 20%, the highest mark in the last 20 years. With The Fed suggesting further increases to the Federal Funds Rate, this will lead to even higher credit card rates.

Meanwhile, mortgage rates have been falling as credit card rates have been rising. 30-yr mortgage rates dipped below 6% this week for the first time since September. Our rates, in particular, continue to be much lower than the industry average (read Our Rates Are Some Of The Best In The Biz).

Let us help alleviate the financial stress of carrying high credit card balances at astronomically high interest rates by refinancing them into a lower fixed rate mortgage. There is a small window this month before cash-out refinances cost thousands higher in fees due to industry-wide changes to these types of loans, so give us a call now & allow us to assess your cash-out refinance options.

**The chart above is for illustrative purposes and not intended to be used as a rate quote. Rates vary based on loan size, credit scores, and many other factors. Give us a call to get a customized and competitive rate quote.**

Rates Are Up…But Life Goes On

Major life events will continue to prompt real estate transactions

For the last two years, most home purchases were driven by “wants.”  Covid-related isolation made many buyers feel like they “needed” a bigger backyard, a home office, a vacation home, a Red-state zip code…but those were wants, not needs.

With current mortgage rates now over 7%, most existing homeowners may be content sticking with their sub-4% mortgage rate and never moving again.  Right?

Think again.

Contrary to recent history, the real estate market is not solely guided by mortgage rates and exuberant home buying trends fueled by reality TV.  It’s guided by life; you know, the thing you are constantly planning but inevitably takes an unexpected turn.  And its in these turns when people NEED to move to a bigger home, a smaller home, a different state, closer to new work…the list goes on and on.

You never know where life’s next turn may take you

Marriage, job relocation, illness, promotion, divorce, kids, grandkids, death…these events drive the real estate market; keystone life moments that are emotionally charged with excitement, fear, hope or tragedy.  As such, its important you and your loved ones enter your real estate transactions with experienced & caring professionals.  We know your home purchase or sale is more than a transaction; it’s a significant chapter in your life’s story.

Higher mortgage rates will certainly curtail a homeowner from moving just because they are bored with their current house.  But life goes on for the rest of us.  Something will come along that will force you to reconsider your living situation.  When that time comes, I hope that you’ll give me a call to review things with you.  Nearly no one else does what we do: holistically assess your overall real estate position including your current home’s value, your new home buying opportunities, and the mortgage programs available to you.

Life’s unexpected twists & turns may force you to change direction with your real estate affairs, but we will be able to clearly articulate the options available to help you stay on your path.

7% Rates Mean Trouble Ahead For Market

For the first time in 20 years, 30-year fixed rates hit 7%

The last time 30-yr fixed mortgages were at 7%, the world was very different place:

  • Gas was $1.36/gallon
  • “Friends” was still on TV
  • The iPod was Apple’s latest gizmo
  • Tom Brady won his 1st Super Bowl

But what’s also drastically different compared to 2002 is our real estate market. 20 years ago, the median price for a Sacramento home was $187,000. That was relatively affordable even with rates at 7%. Today with rates at 7%; not so much. Let’s compare the then & now numbers.

Today, home values are almost 200% higher than they were 20 years ago while income is only marginally up 62% higher. All that translates to is instead of 34% of a household income going to a mortgage payment, it is now standing at an unsustainable 57%. Something has to give.

Let’s compare this percentage of income to what the market was at the last peak of the real estate cycle in 2005.

Home values were less & annual income was less but as a percentage, today’s household’s monthly income going towards a mortgage payment is higher than the levels in in 2005. That is a very troubling statistic. Something is going to break. Something has to change from these 2022 numbers. They are not sustainable. 1 of 2 things is going to happen: home prices have to come down or interest rates have to come down. Let me show you by how much.

How about a middle-of-the-road number of 45% as an acceptable mortgage payment-to-income ratio. To get to that number, home values need come down to $420K in Sacramento County. That’s a 21% drop from where they are right now. Keep in mind from 2005 to 2011, home values in Sacramento County decreased by more than 50%. To have a 21% correction, its not quite as deep of a crash as what we saw, but its very certainly possible to see them come down quite a bit if interest rates stay at these elevated levels at 7%.

Now, if interest rates come down then affordability is obviously aided by paying less in interest & you can pay more for a house. For home prices to remain at their current levels, 30-yr rates will need to fall down to 4% to get that percentage of income to acceptable 44-45% range.

Which is going to happen? I don’t know. We’re going to have to see as we go into Q4 here and see what happens with inflation. See what happens with buyer demand. There’s so many factors that go into impacting the health of the real estate market. But in the present moment right now with prices where they are at, with interest rates where they are at, we are at an unhealthy level.

If I had to guess, its going to be a combination of both prices and interest rates falling in the next 3-6 months for us to find a little bit more of a healthy footing for our real estate market. I know I just showed you Sacramento numbers, but this is an issue statewide and, arguably, nationwide.

What do you think, though? I’d love to see some comments down below. Tell me what your forecast is & we’ll all be on the edge of our seats here as we go into Q4 of 2022. As always, I appreciate you taking the time to watch my videos & read my posts.

Look out for more. I’ll keep you updated with market analysis here at MattsMemos.com.

Thanks again!

Summer Breeze, (STILL) Makes Me Feel Fine!

Thank goodness the record heat wave throughout California is behind us.  This week we have summer breezes to cool us off & blow the smoke away!  At the beginning of the summer season, I penned a post that predicted the real estate market normalizing and home values cooling over the summer months.  With mere days left in summer, lets look back and see how that prediction fared to what transpired over the last few months.

Buying Pace Slowed

As summer temps were heating up, the pace of home buying was falling dramatically.  30% fewer homes were purchased this June compared to the same time in 2021.  Oddly, early summer is normally when we see volume INCREASE as spring-fever purchases begin to close escrow.  Clearly the market was going through a change, and this shift continued through the rest of summer.  Things appear to have bottomed out, as August saw a small increase compared to July, but we are still at seasonably low levels.  You have to go back all the way to 2007 to see a slower summer for Sacramento real estate.

Listings Piled Up

From April 1 to August 31, we saw the number of homes for sale nearly TRIPLE This wasn’t due to a ton of people deciding to sell all at once, but rather a back-log of homes sitting on the market from a drop in buyer demand.  This sharp increase has leveled off, and the ratio between buyers and sellers has returned to a normal, pre-pandemic range.

Home Values Fell

I had predicted that fewer buyers and more sellers would result in falling home prices. Indeed, the greater Sacramento area experienced a drop of nearly 7% in the median home price from Memorial Day to Labor Day.  August’s mark of $580K is still the highest ever recorded if you exclude the prior 6 months, so most homeowners are still in very good shape.  

Nevertheless, the market is clearly changing and both buyers and sellers need to get accustomed to the new landscape in real estate.  Like this week’s summer breeze that has removed the unusually hot temperatures, our cooling real estate values mark an end to the insanity experienced during the pandemic. This shift should make both buyers and sellers feel just fine as things have normalized heading into the autumn & winter seasons.

Feel free to call on our team & me should you need any advice navigating today’s market.

Summer Breeze, Makes Me Feel….

I’m forecasting falling home values, and this summer breeze on the cooling market should make buyers feel fine!

My oh my, a lot can change in a few months.  At the beginning of the year, home prices were rising at an unsustainable 4% per month and selling faster than ever before.  And then a war broke out!  Needless to say, Russia’s war sent shockwaves around the world & we’ve all been impacted by the war’s economic ripple effects (gas prices, food costs, interest rates, etc).

The typical red-hot summer real estate market has changed too.  Sellers have watched buyers become more hesitant due to the fastest rise in mortgage rates since the early 80s.  

As a result, 30% fewer home sales have occurred this month compared to the same time frame in 2021.  This significant decrease in volume will force motivated sellers to drop their prices to attract a buyer, and eventually this momentum should lead to declining home values by summer’s end.

Homes on the market are up; homes actually selling are down. But both are approaching normal, pre-pandemic levels

Some may read those figures and suggest this post’s musical title be changed to “Cruel Summer” or “Summertime Sadness.” But they would be wrong.  Rather, this cooling “Summer Breeze” is simply returning the market metrics to pre-pandemic levels.  We are approaching 7,000 homes for sale in the Sacramento market, a similar amount we saw in the spring of 2020.  This equates to 2 months of housing inventory on the market, again a comparable figure seen before the pandemic.

For some, this market slowdown is wonderful news!  A more balanced, normal market will lead to more opportunities for first-time buyers.  With younger Millennials now hitting their late 20s/early 30s, there are literally millions of them looking to purchase their first home.  This will help soften the fall for home prices, particularly for lower priced homes.

If you have been considering a home purchase, now is the time to get prepared for buying opportunities!  You have more options, sellers are more eager, and prices are no longer increasing.  Give me a call to discuss ways to best capitalize in today’s market as a home buyer.

Should You Make Your Next Mortgage Payment?

Times are uncertain, so skipping a few mortgage payments sounds nice, right? Not so fast.

In response to the economic turmoil caused by the Covid-19 pandemic, Congress passed an unprecedented 2.2 TRILLION dollar financial aid package for Americans. Known as The CARES Act, it aims at relieving businesses and individuals from economic hardships, including provisions to allow folks to request mortgage payment forbearance for the next several months. Awesome, right??!! Not so fast.

The intentions of this policy were wise, as a mortgage payment is often the single largest monthly expense for households. But, the unforeseen ripple effects of hundreds of billions of dollars in delayed payments has the potential to cripple the entire mortgage industry, put homeowners in perilous financial positions, cause grave damage to the overall economy.

To explain the economics of this issue, I’ll briefly touch on lessons of history, politics, English, and zoology.  I know its long, but please take the time to understand the full story and the negative consequences you and society at large may face if pursuing mortgage payment forbearance.

 

First, A Bit of History

On March 27th, President Trump signed The CARES Act, a package of profound financial aid to Americans. The last time the federal government swooped in to save the economy, it was 2008 and TARP (“Troubled Asset Relief Program”) was passed to primarily bail out large (ie-“too big to fail”) banks in the midst of the “Mortgage Meltdown.” There was much criticism about how big banks were saved but the “little guy” was left out in the cold, so today’s policy makers didn’t want to repeat that same formula. WERF-00017390-001The CARES Act is more focused on small businesses and individuals, and includes direct cash payments as well as the option to request to defer payments for the next 6-12 months without proof of financial hardship. As long as the mortgage is backed by a government entity, the mortgage servicer must honor the request. But, what the mortgage servicer must also honor is the monthly funds owed to the mortgage bond holders. In a nutshell, mortgage companies have to keep paying money out even though money is not coming in. YIKES!

Mortgage servicers will be facing incredible cash crunches and have repeatedly asked policy makers to establish a lifeline allowing mortgage servicers to borrow money from The Federal Reserve Bank to keep money flowing through the system. Without this form of aid, the mortgage industry as we know it could die.

 

Next, A Little Politics

As of this writing, the most influential politician on this matter insists that government intervention is not yet needed. Mark Calabria, the appointed director of Federal Housing Finance Agency (FHFA) who directs Fannie Mae & Freddie Mac, has a track record of disfavoring the government coming to the rescue in turbulent times. In fact, he’s gone on record to say if he were in charge during the Mortgage Meltdown of 2008 he would have let the very institutions he currently leads fail! Moreover, Mr. Calabria recently estimated “2 million borrowers would seek forbearance requests by May” and suggested if mortgage servicers get in trouble they could always sell their mortgage accounts to the larger mortgage servicers. Mr Calabria is either tragically miscalculating or misinformed on both fronts.

According to the Mortgage Bankers Association, the industry already processed well over 2 million requests by early April, and this number will only increase as our economy struggles to fully bounce back from shutdowns. Furthermore, the two largest mortgage servicers in the country, Wells Fargo & Chase Bank, have established policies in the last week to drastically reduce the amount and types of new mortgage

95a49ccb-4512-48f9-a3c8-49a128a6db32
Mortgage firms may go bankrupt

s they are willing to take on. There is no way the larger mortgage outfits will be a backstop to these new kinds of toxic mortgages with payment forbearance. Since the payment forbearance phenomenon was not created by the free markets, the free markets are not able to be the solution. Government intervention is essential, and at this time support to mortgage companies is only being offered to loans related to VA & FHA, which is a very small minority of the overall mortgage market.

 

Siri, What Does Forbearance Mean?

Unless you have a Jeopardy-sized vocabulary, forbearance is not a word you use often. Oxford dictionary says its “the action of refraining from exercising a legal right, especially enforcing the payment of a debt.” Simply put, forbearance does not mean forgiveness. Mortgage companies may temporarily refrain from collecting your payments, but they won’t hold back any longer than legally necessary, and likely won’t play nice when that time comes.

 

Survival Instincts Will Take Over

With inevitable liquidity issues and no sign of an immediate parachute from the federal government, mortgage servicers have impossible decisions ahead of them. Sadly, I believe this will force mortgage servicers to avoid favorable forbearance agreements at all costs. They will only play as nice as necessary to follow the law, but be ruthless otherwise. If you went through a short-sale or loan-modification process during the last housing recession, you know exactly what I’m talking about.

For example, there are no rules that govern when these deferred mortgage payments are re-paid. Even this video from the Consumer Finance Protection Bureau is vague. Potential options your mortgage servicer may offer: 1.) tack the payments on at the end of the loan; 2.) spread the missed payments over a period of time; or 3.) demand the payments be made in a lump sum.

e959fb34-c706-439d-bf8d-aee4215276beWhat would you do if you ran out of cash and someone was overdue on a loan due to you? You’d force them to play catch up ASAP, right??!!  Its not greed.  Its not nasty.  Its survival.

 

Mortgage servicers will do the same thing, forcing a homeowner who skipped payments at, say, $2000/month for 3 months & now pay $8000 in a lump sum in the 4th month. Obviously, most folks who truly need the payment reli6d414dac-6ee1-4973-b54a-0f8cdb5bc8d7ef in the coming months likely won’t be in a position to make a single catch-up payment, but tragically mortgage servicers are not in a position to float millions of skipped payments over the next few months and then patiently wait for reimbursement at the end of a 30-year loan. They have been backed into a corner, and will use any means necessary to try and survive.

I remain optimistic that policy intervention and clarity will eventually calm this situation down, but until it does every mortgage servicer is in a choke hold.

 

What Should I Do?

If you have suffered a big economic loss and cannot make your mortgage payment, by all means call your mortgage company and request payment forbearance. Yes, this may mean you are forced into a lump sum payment at some point, but that is tomorrow’s problem. You have bigger problems today; take the payment relief and hope repayment options are more favorable when you’re back on your feet.

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If you still have cash, keep making your monthly payments!

BUT, if you are still able to make your mortgage payments, please continue to do so. Consider taking advantage of the delayed tax filing deadline (extended 90 days to July 15th!), but don’t delay making your mortgage payments unless absolutely necessary. Staying out of forbearance will allow you to keep your options open for refinancing if rates slip down (forbearance generally disqualifies you from getting a new mortgage) & will help you avoid a build-up of payments that will likely need to be paid all at once in the future. It is not only in your best interest, but also in the best interest of the mortgage industry and our country at large. If too many borrowers utilize payment forbearance, the mortgage system could face catastrophic failure that would result in a housing crash worse than the Mortgage Meltdown of the late 2000s.

Spread The Word, Not The Virus

Please pass this post along to as many friends and family as possible, and do your part to encourage folks who have been considering mortgage forbearance to know the full story. In the meantime, stay safe, stay inside, and stay sane!

Should You Finance Energy Efficient Upgrades? UPDATED 2018

Energy efficient upgrades to a home can add value, lower your utility bills, and make you a “greener” citizen of the Earth. There are now a number of finance alternatives that have made these updates more accessible than ever before.

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For example, you can lease solar systems and offset the monthly lease payment with the energy savings produced. You can also borrow money to install energy saving appliances, and have the loan payments added to your property tax bill. With all of these new finance alternatives, it has helped many homeowners who otherwise wouldn’t have been able to install these updates with their own savings.

But are these new finance options truly helping homeowners? We have spoken to a number of clients who weren’t aware of some of the fine print of these finance schemes, specifically how these lease and loan options create a lien on their property that make it difficult or even impossible to refinance their homes.  Furthermore, changing income tax laws impact many of these finance alternatives.  PACE loans, for example, are liens buried into the property’s tax bill, but many California homeowners may find their property taxes not as tax-deductible as in years past.

Most folks recognize that they are going to pay interest if they borrow money from a solar or utility company, but what does not appear to be commonly understood is that these loans and leases are recorded against the property.

We have worked to help several clients refinance to a lower interest rate and save money on their mortgage payment. During the underwriting process, we discover an additional lien resulting from a solar, window, HVAC, or other energy efficiency update. This secondary lien must either be paid off or give permission for the mortgage to be refinanced. Many times, the client either doesn’t want to or can’t pay off the loan, and the energy efficiency loan won’t allow the refinance to proceed. The refinance attempt ultimately fails. Ironically, the act to save money through energy efficient updates ends up handcuffing the client to a higher mortgage interest rate loan, thus losing more money to interest than what is being saved in lower utility costs.

Not all loan and lease terms are the same amongst the various options and vendors. And in some cases it probably makes sense to obtain one of these loans and live with the potential down sides.   Simply be sure you know the fine print. Solar and other outfits are pushing these available financing options hard on homeowners, but there are more traditional finance options available that you may want to consider as well. A cash-out refinance, home equity line of credit, home improvement loan, or other form of traditional mortgage financing may make sense as well. As always, we are happy to discuss what options you may have and objectively point out the pros and cons of each.