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Mortgage Myth Buster

Quick update today, as I think most of us are already mentally in the holiday weekend!

BUT, it has been yet another volatile week for markets and interest rates.

PCE – Personal Consumption Expenditures came out this morning and year over year dropped from 4.3% to 3.8% which is great. We also got some information on American’s spending – spending is only up one tenth of a percent in May which is down half a percent from April. The savings rate is at 4.6%. If we try to look for the last name finances were normal in this country it was probably before Covid, and back then our savings rate was 10%. So we know Americans are running up massive amounts of debt, their income is doing ok but their spending is seriously slowed and their savings rates are NOT GOOD AT ALL. This information points to an economy that may be hurting in the near future.

Will the Fed hike or continue its pause next month? I’ve been leaning towards that they are bluffing about any more rate hikes this year, they just want to keep the markets from getting too excited because that could hurt our progress towards deflation. Atlanta Fed President said this morning that he thinks the Fed should stop hiking, so that supports my theory. There are other viewpoints on this though. If the jobs report comes out strong next week, we should be more concerned about a rate hike.

I’ve also noticed so many more questions from realtors, lenders and consumers about loan programs, market predictions, the pros/cons of various negotiation strategies. Here is the thing, social media is great for highlighting information and free education. The downside? Zero fact checking, anyone can say anything and then consumers are easily misled. And, sometimes a 15 second reel doesn’t allow for all the important details about a certain loan program to be shared. The viewer has formed an opinion after those 15 seconds though…and that opinion influences their real estate decisions.

So I want to clear up a couple of the most common questions I’m hearing right now. We’ll dive deeper on myth busting on our monthly housing webinar which is coming up next week. If you are not registered for these, you’ll want to correct that immediately.

First – assumable loans have been all over TikTok. It is a super cool strategy to assume the seller’s government loan – VA or FHA loans are assumable. You don’t even have to be a veteran. Subject to financing can be done on conventional loans too and is a similar concept. You buy the house for real reals, subject to the existing financing in place. The seller keeps their mortgage but you take over the payments. The important details to consider:

1. If you are assuming a VA loan, the veteran seller’s eligibility is not freed up unless you are a veteran who can transfer the guarantee to your own certificate of eligibility.

2. You cannot finance the difference between the loan balance and the sales price. For example, if the seller has an FHA loan for $300k and is selling for $400k – you must have that $100k as a down payment available.

Next – rate buy downs. What does 1 point mean and how much does it buy down your rate? One point is one percent of your loan amount but there is not a reliable formula for how much improvement that makes on your interest rate. It varies based on the market. So you’ll want to run a total cost analysis to see how much paying those points to buy down your rate will improve your monthly payment. Then you can calculate how quickly the points pay for themselves based on monthly savings and consider whether you will have the loan that long. Some important details to consider:

1. Most folks taking out a mortgage right now will be refinancing that mortgage within 2 years as interest rates cool down.

2. This is why temporary buy down programs like the 3/2/1 or 2/1 buy down are popular right now. However you can only use these programs for owner occupied properties with conforming loans. You can’t do a temporary buy down on an investment property or a jumbo loan.

Last one for today – mortgage insurance is not evil. Waiting to save up 20% to put down could cost you on other market conditions like prices or interest rates. Also, mortgage insurance can get you a better interest rate with some investors because it’s less risk for them. If you default, the mortgage insurance company has to pay the debt. So remember, unless you are an expert on something, it’s best to ask an expert to explain it fully.

We’ll get into much more myth busting on Wednesday at noon! You should also save the dates for the next Mortgage and Mimosas (if you’re a local realtor) on Tuesday, August 22 at 10am at Rancharrah AND the next Future is Female – which is open to everyone, everywhere – will be on Thursday, September 14th.

Have a great Fourth of July! Not sure if I’ll have an update for you guys next Friday or not, you’ll have to wait and see.

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