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Mortgage News and Updates – Winter 2024
Get the latest mortgage industry news. Click here.

– Economy & Mortgages: Mortgage Rate Outlook – Gradual Normalizing Continues

– Is AI taking over mortgage lending yet?

– If the Fed is easing rates, why are mortgages not exactly following?

-Inheriting a house with a mortgage. What to consider.

-What’s Mortgage Protection Insurance and Do You Need It?

Economy & Mortgages: Mortgage Rate Outlook 2025 – Gradual Normalizing Continues

Is AI taking over mortgage lending yet?

The mortgage business has been automating steadily for years, and as Artificial Intelligence (AI) becomes more powerful, there exists a potential to help lenders achieve faster, more data-driven results. Already, our tools are able to collect and analyze your financial data, and can automate many routine underwriting steps, speeding up initial risk assessments and approval decisions, and reducing costs.

But AI falls short for now because mortgage scenarios can be amazingly complex, involving dozens of potential loan program solutions, unique borrowers, property valuations, and credit histories. It’s a heavy lift to develop the “training data” needed to build an effective AI solution. The industry is getting there, but for now, the human touch is still required for a good portion of the more nuanced work.

While AI will eventually take on larger roles within the mortgage business, for now, you’re in good hands with our expert team of humans!

If the Fed is easing rates, why are mortgages not exactly following?

I have been fielding calls over the last few months from clients who are wondering why, when the Fed has eased interest rates, mortgage rates have actually risen again after a brief dip over the summer. Great question!

To answer this, first know that the Federal Reserve (Fed) doesn’t directly set mortgage rates. Its mission today is battling inflation and keeping the economy out of a recession.

Indeed, the Fed can influence mortgage market rates by expanding or shrinking its balance sheet, buying and selling huge batches of government securities in the open market, as it did during the financial meltdown / Great Recession 15 years ago.

While that’s an example of how Fed actions can indirectly affect mortgage rates, clearly there must be other factors involved!

Federal Funds Rate:

The Fed sets the federal funds rate, which is the interest rate banks charge each other for very short-term (overnight) loans, as banks manage their daily cash flow. Mortgages, being longer-term debts, track more closely to the 10-year Treasury bond rates, which the Fed does not manage.

You can see this in the chart here – – note how mortgage rates track pretty closely to the long bond (10-year bond). Changes to the federal funds rate do make it more or less expensive for banks to borrow money. But it takes months for such changes to work through the financial markets and impact long-term bond rates.

Open Market Operations:

The Fed can buy or sell securities (like Treasury bonds) in the open market. You may recall “quantitative easing” being a part of the Fed’s response to the housing market crash around 2008. The Fed purchased over $1.5 Trillion of mortgage-backed securities, hugely expanding its own balance sheet.

By effecting massive demand for these securities, their price rose. In the inverted world of debt instruments, this lowered mortgage rates to help homeowners. Then it did so again in response to COVID-19, buying over $1T more! More recently the Fed has been trying to “unwind” its stuffed balance sheet by selling off debt, at lower prices, leading to (eek!) higher interest rates. Of course it has to try to do this carefully, or risk sending the economy into a recession. What a tightrope!

Mortgage rates have risen recently because other economic factors also have a powerful influence. Persistent inflation tends to devalue debt, since a dollar repaid in the future is worth less! That pushes down bond prices, and bond yields (interest rates) go up. Strong economic performance has the same effect. The bond market is focusing on these factors as they consider the prices they’ll pay for long-term debt securities.

In sum, while the Fed strongly influences financial markets, its monetary policy actions only indirectly influence the markets for longer-term bonds that directly impact mortgage rates. Contact us for a more detailed discussion, and my thoughts about where rates may go from here!

[Data: Federal Reserve Bank of St. Louis]

Inheriting a house with a mortgage. What to consider.

Inheriting a house that’s not yet paid-in-full is becoming more common. Homes have become more expensive to start with, and mortgages are effectively outliving borrowers in many cases.

Additionally, many seniors have purposely tapped built-up equity for “aging in place” improvements that allow them to stay put longer, for medical expenses, and for other needs. This leaves them with mortgage debt — all for very good reasons, of course!

Given the price of homes, keeping a house within the family as one generation passes can give the offspring a leg up in terms of continuing to build real estate wealth. It’s not uncommon for children or grandchildren to get a start in real estate by inheriting a house.

If you find yourself inheriting a house, you have a few options:

-Sell the house: The first decision to make is whether to keep the house. If no one is planning to live in it, you could sell the house. This solves the mortgage problem. It would be paid off out of the sale proceeds, and you’re done. If the debt exceeds the value of the house, in many jurisdictions heirs are not responsible for a mortgage shortfall (speak with your mortgage attorney!).

-Move in / keep the mortgage: Many mortgages have a “due on sale” clause, and if you don’t occupy the home, it gets triggered when the title is transferred. If the borrower dies and you inherit the home and plan to occupy it, you cannot be forced to pay off the mortgage. You’d “assume” the existing mortgage, supplying the mortgage company a with a certified copy the death certificate and a copy of the deed to the home showing you as the new owner, replacing the original borrower and continuing to make the original payments.

Since you’re technically making payments for the person who is deceased (who’s on the mortgage), those payments do not go on your credit report. And if the terms of the old mortgage are better than what you can qualify for today, that may not be an issue.

Move in / replace the mortgage: If you move in and the characteristics of the mortgage don’t fit with your own financial situation, we can help you attempt to finance the home with something more appropriate.

Keep in mind that this is not a “re-finance” since you aren’t on the original mortgage. You’d have to qualify as normal for a new mortgage. Overall, the first step is to contact us. We have handled these situations over the years, and we can help you make the right moves!

What is Mortgage Protection Insurance and Do You Need It

Mortgage Protection Insurance (aka Mortgage Life Insurance) pays off your mortgage upon your death. It is a legitimate product, but do you need it? When you die, your survivors inherit your mortgage debt along with the house (see article inside about inheriting a mortgage). Mortgage protection insurance pays some or all of the loan off, leaving inheritors with less mortgage debt (or none).

Mortgage Protection Insurance has some advantages versus traditional life insurance. Many offerings are “guaranteed acceptance” policies, which helps if health conditions prevent you from getting affordable life insurance coverage. The insurance payment goes directly to the lender. Your inheritors don’t need to handle that payoff, and your heirs inherit a fully paid-off home, or at least a smaller mortgage.

However, traditional life insurance generally offers greater flexibility for those you leave behind. Traditional life insurance pays the funds to the beneficiaries, not the lender. They can use the funds to pay off debts first, or use them in other ways, if they assume or replace the inherited mortgage.

If your current insurance portfolio offers sufficient coverage, I would not recommend adding mortgage protection insurance. If you don’t have life insurance, we can help you explore this option.

Copyright © 2025 Myers Capital Hawaii

The Federal Reserve today announced its second rate cut of 2024, lowering its benchmark interest rate by 0.25% just after the U.S. presidential election. This follows a 0.5% reduction in September and is in response to easing inflation and persistently low unemployment.

This move comes after a series of 11 rate increases from March 2022 to July 2023, bringing relief to consumers by reducing borrowing costs for credit cards, auto loans, and home equity lines of credit.

Impact on Mortgage Rates
While the Federal Reserve doesn’t directly set mortgage rates, it influences them through its policies. Mortgage rates generally follow the direction of shorter-term interest rates.

However, despite the 0.5% rate cut in September, mortgage rates have actually risen, with 30-year fixed-rate loans now averaging 6.79%, according to Freddie Mac.

Key Economic Factors Influencing Mortgage Rates
-Bond Market: Mortgage bonds, or mortgage-backed securities (MBS), consist of groups of mortgages bundled together and sold to investors. These investors receive interest payments from borrowers’ monthly payments. Recently, bond yields have risen due to expectations of stronger economic growth under the incoming administration, making these bonds less attractive and pushing mortgage rates higher.

-10-Year Treasury Yield: Mortgage rates often move in tandem with the 10-year Treasury yield, a crucial indicator of long-term interest rates. In early September, this yield was 3.84% but has since jumped to 4.31% as of November 7.

-Labor Market: A robust labor market has also put upward pressure on mortgage rates. The September jobs report showed payrolls increasing to 254,000, up from 159,000 in August, while the unemployment rate dipped by 0.1 percentage points to 4.1%. Strong job growth can signal increased demand for housing, which can drive rates higher.

These factors indicate that, despite the Federal Reserve’s recent rate cuts, mortgage rates may stay elevated as the economy continues to show resilience. While additional rate cuts are expected at the Fed’s December meeting and potentially in early 2025, their timing will depend on the strength of the economy, the labor market, and inflation trends.

Whether you’re buying, refinancing, or exploring your options, we’re here to help you secure the best mortgage financing. Contact us today for expert guidance and personalized solutions tailored to your needs. Call 808-566-6611 for details.

The mortgage market has made a promising shift! Mortgage rates are gradually decreasing from their near-8% peak last Fall, making homeownership more accessible for those wishing to buy. The average rate on a 30-year fixed mortgage first retreated under 7% in July thanks to a brighter June inflation report.

That favorable trend continued into August, bringing the national average 30-year fixed rate solidly under 6.5%, where it has been hovering as the market waits for continued developments on both inflation and the health of the economy.

Inflation still sits a bit higher than the Federal Reserve’s 2% target, but continuing to trend in the right direction. Coupled with signs of weakness in the job market, the Fed chairman indicated in late August that they’re finally ready to start cutting rates in September.

Keep in mind that bond rates and mortgage rates have recently fallen in the absence of a Fed rate cut — more appropriately, in anticipation of a Fed rate cut. That means any Fed action in September may only have a small effect on mortgage rates.

Home prices are finally stabilizing, after a period of rapid escalation that began in 2021, providing additional relief to potential buyers. The inventory of homes for sale remains tight, though experts predict increased supply as the year progresses.

But if you’re waiting for home prices to dip, you may end up waiting a really long time. With just over 26% of adult Gen Z’ers owning a home in 2023 and Millennial homeownership standing at 55% (compared to Gen Z and Boomer homeownership at around 70%), the expected generational demand will continue to exceed the supply, keeping a floor under prices.

“The recent decline in rents means Gen Z’ers can put more money toward saving for a down payment. Plus, the job market is strong, and career opportunities have become less concentrated in expensive cities during the remote work era, meaning many Gen Z’ers can choose to live somewhere more affordable,” said Daryl Fairweather, Chief Economist for online real estate firm Redfin.

How are lower rates affecting the market?
Thus far, the lower rates we’re seeing haven’t brought buyers into the market in any significant way. That said, as rates continue to improve, we do expect a gradual shift towards a more active market in the latter half of 2024 and into 2025.

If you’re in a position to move up or downsize, it might be better to make a move while things are relatively quiet, rather than wait and battle it out with other buyers entering from the sidelines. Let’s get in touch and set up a time to review how the improving market conditions can support your real estate ownership goals.

Get the latest mortgage industry news. Click here.

Copyright © 2024 Myers Capital Hawaii

Get the latest mortgage industry news. Click here.

– Economy & Mortgages: Mortgage Rate Outlook – Ready to Take Advantage of Lower Interest Rates?
-ARMs are Big  
-The Importance of Liquidity When Buying
-Should You Skip the Rate Lock?  
-Is Title Fraud Really a Problem? 

Economy and Mortgages
Mortgage Rate Outlook – Ready to Take Advantage of Lower Interest Rates?

ARM’s are BIG

Adjustable Rate Mortgages (ARM’s), which are usually fixed for 3, 5, 7, or 10 years before they actually start to adjust, are a popular alternative to 30-year fixed-rate mortgages, since they can have lower initial rates, which can improve affordability.

They can be a smart option for buyers who don’t plan to stay put. ARM’s tend to be more popular with younger, higher-income households that have larger mortgages, according to the Federal Reserve Bank of St. Louis.

Because rates have been high recently, ARM\s represent about 16% of the market, near a historical high-water mark. Many borrowers are attracted to the rate advantage, figuring that rates will have improved enough within the next few years to make a refinance possible. Or, they plan to move soon.

If you do the math, even if rates rise after the fixed period ends, an ARM could make the most sense to finance your purchase. But hold on, we do all this math for you! Reach out to us for details.

The Importance of Liquidity When Buying

When buying a home, especially your first home, it’s easy to get focused on the amount of funds it takes to make the purchase happen — down payment and closing costs – and overlook the resources required after the purchase.

The last thing you want is to buy your dream home and then be “house poor” and miserable for months afterwards. Planning for post-purchase liquidity is an essential part of a winning financing strategy.

First, you’ll need to meet the minimum requirements for mortgage reserves. Lenders often require reserves — it guarantees that there is cash on hand to cover the mortgage for a few months after closing, in case you’re laid off.

On single-family homes, this amount can be up to 6 months of mortgage payments for conventional loans (FHA loans usually do not require them), and varies based on several underwriting factors. Reserves can be cash in checking/savings accounts, money market accounts, CD’s, stocks and bonds, trust accounts, cash value in life insurance policies, and the vested portion of 401(k)’s and IRA’s.

It’s tempting to check that box and be done with it, but keep in mind that buying a home comes with a few other financial considerations that you’ll want to plan for:

• Moving Expenses: A local “DIY” move could still cost $1,000 or more (plus pizza and beer for your friends). Long-distance moves with pros start at around $4,000 for a 2-3 bedroom load and a few hundred miles, to over $15,000 for a 4-5 bedroom load and 2,000 to 3,000 miles.

• Furnishings: A new home may be bigger or simply different than your current home. To make your new place not look just like your old place did, you should have a generous reserve in your budget for furniture. The good news is that there is a tremendous market for pre-owned furniture these days, which can help you get more for your dollar.

• HOA Fees: Many newer homes come with Homeowners Association dues that cover the cost of common areas in your development. Make sure you know what those are.

• Upgrades and Maintenance: In addition to upfront costs for upgrading paint, carpets, flooring, and window coverings, the average annual cost to maintain a single-family home reached $6,663 in 2023, according to vendor website Thumbtack. Budget as much as 4% of your home’s value each year for maintenance of things like roofing, HVAC, plumbing, flooring, landscaping, pest control and more. In certain areas of the country, you’ll also want to be prepared for periodic costs associated with storm damage.

Take action early. As you approach a home purchase, you can bulk up your reserve readiness by decreasing spending as much as you can, setting aside funds each month in a special account, or even picking up some side gigs if that’s an option. Make sure your home purchase goals are realistic enough to ensure you’re liquid and not “house poor” once you move in.

With Rates Dropping, Should You Skip the Rate Lock?

With mortgage rates edging down, it’s natural to ask whether requesting a rate lock still makes sense. When interest rates are rising, exercising a rate lock is a slam-dunk decision. With rates trending down, it’s still worth discussing with us, since it still may make sense.

What is a Rate Lock? 

You lock in your loan rate for a specific number of days, often aligned with the time it will take to close your home purchase or refinance.

Rate locks of 15-30 days are standard, depending on your loan application status, whereas locks of over 30 days usually cost more, to cover the risk that the market rate will change relative to the rate that was quoted.

Locks for 30-days and 60-days are typical, given how long it takes to close on a purchase, with even longer locks sometimes available at higher cost.

Why Lock When Rates are Trending Down?

The main reason to lock in your rate when interest rates seem to be declining is peace of mind. Even in a downtrending market, rates jump up and down on a daily basis. There can be periods of 2 to 3 weeks where rates trend up for one reason or another, then resume their down-trend.

If you’re someone who agonizes when rates bump up by even a small amount, and it’s stress inducing to think that you might have missed a slightly lower rate, then lock it in and relax. There are enough other things to worry about when buying a home.

Have Your Cake and Eat it Too

Float-down options can also help. These let you honor your locked-in rate or the current rate, whichever is lower. Float-down options often have unique terms that dictate how many times the rate can float down, what the cost is, and how much it can float down in total.

Talk to us about how this works. Right now, with financial markets already pricing in Fed rate cuts to some degree, any upside surprise (employment, consumer spending, inflation, geopolitical conflicts, etc.) could cause interest rates to pop unexpectedly.

If these things are of concern, a rate lock can help with peace of mind. We can help you make the best decision for you.

Is Title Fraud Really a Problem? 

Losing sleep over that radio ad about villains stealing the title to your home? The ads claim that thieves can “steal” the deed to your property, then mortgage it or sell it without you knowing. In a world where phishing, hacking, personal data theft, and scamming is all too commonplace, it could be another new thing to worry about.

Or not. Here are the stats: the FBI estimates that title fraud impacts 10,000 homeowners annually. So yes, it’s a thing, but with 86 million homeowners out there, a “crime wave” it is not. You might want to ignore the hysterical ads peddling $79 monthly “Title Fraud Insurance.”

While someone could potentially forge a deed that transfers title to themselves, and try to record it with the county, if a buyer or lender relies on that forged deed without doing due diligence on the property’s title, they (not you) are on the hook for any lost money paid to the thief.

Further, the deed’s signature must be certified by a Notary Public, who is required to verify your identity. And lenders, title companies, and real estate firms have major safeguards in place that validate any transactions based on a myriad of other factors.

Still, if you’re worried, contact your county offices. Just like the free monitoring services available from the credit bureaus, many counties now offer title monitoring services that alert you when a change occurs to your deed.

Copyright © 2024 Myers Capital Hawaii 

Expectations for a drop in mortgage rates in the coming months have shifted as new economic data has arrived. Inflation at 3.4% (annual, as of April) remains stubbornly above the Fed’s 2% target. The Fed is unlikely to reduce rates until they’ve seen multiple positive (lower) inflation readings — unless other economic indicators take a nosedive. Watch the labor market in particular.

This Spring, the Fed signaled that they’d continue to hold their benchmark rate level, so mortgage rates, which were trending down in anticipation of lower future rates, did an about-face and popped up over the 7% mark. Recent softening in the Core Consumer Price Index (which strips out volatile food and energy prices), and softer jobs data has lowered the 10-year bond rate, and with it, we saw improved mortgage rates during the first half of May. A bit of wiggle room for buyers!

At the same time, the tight housing inventory situation continues, so prices are firm and continuing to rise (though not quite as quickly). For the first quarter of 2024, median home prices are up 5% nationally, versus last year. “Astonishingly, greater than 90% of the country’s metro areas experienced home price growth despite facing the highest mortgage rates in two decades,” NAR chief economist Lawrence Yun said.

The reason? Get used to it — not enough housing inventory on the market. The number of move-up buyers as well as downsizing retirees, has been below normal — in part due to “mortgage lock,” the 40% of homeowners who are sitting tight with a near-3% loan obtained back when rates were at record lows. Some of these potential sellers are reluctant to list their home when their next mortgage would be a more expensive one. Another factor is that new construction isn’t adding enough overall supply to meet housing market demands.

What’s ahead? Experts predict a continued cool-down in the market, with a slower pace of price appreciation. On the mortgage rate side, investors currently see a 50% chance of a Fed rate cut in September, and most experts believe that mortgage rates will end 2024 in the 6.5% to 7% range – again, depending a lot on inflation and the labor situation.

Our advice? Don’t get caught waiting for rates to drop a lot. Because when they do, there is likely to be a flood of pent-up demand entering the market, and sharply higher home prices. If you’re interested in buying, it’s usually better to get ahead of the market and pay a higher mortgage rate for a while, then refinance when the time is right. Remember, it’s “time in the market” versus “timing the market.” Give us a call today to discuss your goals, and we’ll help you craft a home financing plan that’s a winner regardless!

Get the latest mortgage industry news. Click here.

Copyright © 2024 Myers Capital Hawaii

Get the latest mortgage industry news. Click here.
– Economy & Mortgages: Why Rates are Holding Steady?
-Converting Equity Into Renovations: Sizing Up the Possibilities  
-Tackling Affordability Challenges: The Non-Occupant, Co-Borrower Strategy
-Down Payments for VA Loans 
-APR Explained 

Economy & Mortgages: Why Rates are Holding Steady?

Converting Equity Into Renovations: Sizing Up the Possibilities

Homeowners today are enjoying a record level of home equity, built up by faster appreciation, low-cost loans from a few years back, and staying-put-longer trends. Naturally, we get a lot of inquiries about tapping this equity for renovations, and upgrades.

We like to help clients break it down into not just “needs” and “wants” but when it makes sense to do each. Mandatory projects that should happen right away: This includes addressing deferred maintenance like dry rot, foundation problems, mold remediation, roofing problems, wiring or plumbing issues, sagging floors, and more. It is usually more cost-effective to get it done than let the problems worsen. This keeps your home livable and healthy, and protects its value. If you plan to sell, these are projects you generally cannot ignore.

Life-stage projects: These may include renovations or upgrades that are part of life stage change – – adding a work-from-home office, adding a bedroom or bathroom as your family expands, or adding an ADU for an aging relative to live in. They’re elective in that you can choose not to do these, but life gets challenging if you don’t.

Elective projects: These include entertainment rooms, landscaping, kitchen upgrades, upgraded fixtures or windows, and cosmetic upgrades to a home. These things improve the enjoyment you derive from living in your home, and they can be done on your timetable.

Someday-sell-it projects: Time your upgrade to match your time horizon. Tastes change constantly among homebuyers, and renovations done years beforehand may not age well.

Some projects may make sense closer to the time you sell. On the other hand, if you have a long time horizon, why wait? Renovate now and enjoy your upgraded digs for years to come! We can help you finance any of these. There are ample programs available. We can consider home equity loans, home equity lines of credit, renovation loans, cash out refinances, loans for energy efficiency upgrades, and more.

The important thing to remember is that timetables always run longer than you might like, and good contractors are always busy. So let’s get a conversation started sooner than later, so that you can enjoy the benefits faster!

Tackling Affordability Challenges: The Non-Occupant, Co-Borrower Strategy

Today’s tight market, higher prices, and higher interest rates can seriously challenge many prospective homebuyers. One option buyers can use to improve their purchasing power is to team up with a family member or close friend who will be a co-borrower, but who will not live with the homeowner – a non-occupant co-borrower. Non-occupant coborrowers are allowed with conventional mortgages, FHA loans, and select other programs.

The non-occupant co-borrower is more than just a co-signer. The lender considers their income, debts, and credit history along with the homebuyer’s. This can help the homebuyer qualify for the loan, but it also means the non-occupant co-borrower is jointly responsible for making those monthly payments.

Unlike a co-signer, the non-occupant co-borrower usually goes on the title of the property with the primary homebuyers. This gives them a stake in the ownership of the property, including any upside if it appreciates (and the opposite as well). There can also be tax benefits if they help with payments (please involve your tax advisor!) Generally, there are no restrictions preventing a non-occupant co-borrower from moving into the home later. A non-occupant co-borrower can exit the loan in a refinance, where the homebuyer gets a new loan on their own.

What it takes.

► An honest assessment beforehand. Whether you play the role of the homebuyer or the non-occupant co-borrower, it’s critical to assess risks from both sides. This isn’t something that you can do on your own, at least objectively. Talk to us, and we can help all parties make an honest assessment of incomes, creditworthiness, assets, and more. The co-borrower’s other debts affect the loan decisioning, so you want to know if the addition of the co-borrower’s financials are strong enough to lift the homebuyer’s chances.

► A close relationship is key. The non-occupant co-borrower and the homeowners must be great communicators and work in concert to fulfill their obligations. In some cases, the non-occupant co-borrower is contributing a portion of the payment. It’s important that there is good communication about whether, how much, and when any actual support is required, because they’re jointly on the hook if payments are late or missed altogether.

Credit scores for both parties are affected, and in the case of a foreclosure, both parties are of course affected.

► A commitment to homeownership. Beyond making payments on time, it’s important to share a commitment to taking care of the property. Deferred maintenance can lower the value of the property, which affects both parties in the long run, when it comes time to sell.

Co-borrowing can be a great tool to help a family member or close friend achieve their dream of homeownership. We can help borrowers fully understand all the risks and responsibilities involved. When done right, this can be a win-win for everyone involved! Contact us to get started.

Down Payments for VA Loans

VA loans do not require a down payment or mortgage insurance, but making a down payment is allowed. In doing so, you can offset the VA funding fee to some degree. The VA funding fee is a one-time fee that is charged in most cases, which lowers the cost of the loan for taxpayers.

For a $300,000 loan, a down payment of 0%-4.99% triggers a funding fee of 2.15%, or $6,450 (3.3% if this is not your first VA loan). Raise your down payment to between 5% – 9.99%, and that fee shrinks to 1.5%, or $4,500. Make a down payment of 10% or more, and the fee drops to 1.25% or $3,750.

Consider making a down payment for these reasons:

• Savings! A 5% or 10% down payment cuts your fee funding fee by 0.65% or 0.90%, respectively. On a $300,000 loan, that equates to up to $2,700 in savings! And you’re achieving that by putting up equity, which is ultimately yours to keep.

• You’re borrowing less. That means a lower monthly payment, and potentially a better rate.

• It’s equity. You can tap it in the future, and it offers some protection if home values decline.

On the other hand, it requires cash – not always easy for first-time home buyers. Many veterans would rather get into the market without waiting to save up the down payment, and it’s possible to finance the funding fees into the loan amount. We can come up with a plan that works for you or a veteran you know. Contact us to discuss the options.

APR Explained

Interest rates drive your monthly payment, but they’re not the full measure of how much a loan will actually cost. There are other costs involved: lender fees, discount points, most closing costs, private mortgage insurance, etc. So, we compute an “Annual Percentage Rate,” or APR, which adds these other costs to the interest you will owe, and arrives at a rate that better represents the annual cost of financing. The more “other costs,” the greater the APR is, compared to the basic interest rate. APR allows consumers to more easily compare loans with different combinations of interest rates, points, and fees.

By law, lenders must always disclose the APR, and as prominently as the rate. This prevents shady lenders from “hiding” loans with lots of extra costs. APR assumes you hold your loan the full term. If you exit earlier, the true APR would be higher, since those extra costs would be applied to fewer years! To get the best perspective, you’ll want to compare loans based on how long you intend to hold them. Give us a call and we can re-run any APR calculation based on your plans!

Copyright © 2024 Myers Capital Hawaii

6 Key Tips for Success
Investing in rental property can be a solid path to building wealth through real estate. You’ll need to select good areas in which to buy since location is a critical factor in the success of an investment property. Many investors purchase rentals in areas they live in but this may not always be the most profitable option.

Owning out-of-state rental property has many benefits. A main reason is the return on investment (ROI) may be higher than properties in your own state. Home prices, rental market conditions and regulations, property tax rates, and other factors may be more favorable in another state, which can improve the potential profitability of a rental. High-cost areas and markets with falling real estate prices may not be good choices since they can have lower or negative ROI.

While any real estate transaction has risks, buying and owning property outside of your area comes with different challenges than other deals. These include a lack of familiarity with the local market, economic conditions, regulations, and unforeseen repairs. It may be harder to find desirable areas with above-market rents and quality tenants, which can affect your ROI.

If you are considering investing in out-of-state properties, doing due diligence is essential to help you make sound choices. Here are six important tips for investors looking to buy out-of-state rental property:

Conduct Market Research: Thoroughly research target markets. Analyze factors such as housing prices, economic strength, rental demand, and low unemployment to ensure the area has a stable rental market and the potential for property appreciation. You want to choose a growing market that can help you achieve a higher ROI.

Network with Local Professionals: Build relationships with local real estate agents, property managers, and contractors who can provide valuable insights and assistance throughout the buying process and beyond. They can help you find suitable properties, navigate local regulations, and manage your investment effectively. You can also network with other investors at real estate investor conferences and events that focus in areas you’re considering.

Get Pre-Approved for a Mortgage: Research financing options and get pre-approved before you start vetting properties. This can help put you in a better bidding advantage especially in a competitive market. It can also help avoid any challenges involved with securing financing outside of your home state.

Arrange Property Inspections: Set up comprehensive property inspections by a qualified inspector familiar with local building codes and regulations. Inspections can uncover hidden issues that may affect a property’s value or rental income potential. This can help mitigate the potential risks since you may not be able to look at the property in person.

Run a Financial Analysis: Conduct a thorough financial analysis to determine the potential profitability of the investment. Consider factors such as purchase price, rental income, operating expenses (including property management fees, taxes, insurance, maintenance, and vacancies), financing options, and expected ROI. Be sure the numbers work out before moving forward with an offer.

Hire Professional Property Management: Find a reputable local property management company to handle day-to-day operations, tenant screening, rent collection, maintenance, and other tasks is more important compared to managing a rental that you can make regular visits. Ask for references from other investors who have used prospective property managers and research online reviews. A good property manager can help protect your investment and maximize returns. It’s a good idea to periodically visit the property to ensure that the property manager is living up to your expectations.

Whether you are considering your first rental or already have a growing portfolio, buying property out of state can be a good strategy but it also carries greater risk than buying in your home state. After conducting thorough research, choosing an area with a strong housing market can get you a higher return on your investment, allowing you to grow and diversify your portfolio faster. Contact us to discuss financing programs for your next out-of-state investment property.

5 Important Ratios & Calculations to Know.

Buying and owning rental property is a proven way to successfully invest in real estate. Rentals can provide passive income, long-term appreciation, and solid tax benefits. Like many real estate investments, a key challenge is choosing the right, or profitable, property.

Whether you’re considering single family, condos, or multifamily property, it’s important to review a property’s location for attributes that include areas with strong demand, flexible rental regulations, and reasonable property taxes.  

Besides location, analyzing several key ratios and calculations can help determine whether a rental property has the potential to generate a profitable return. It’s important to keep in mind that real estate investors may use these and other metrics depending on their investment goals.  

Cash Flow
Cash flow is an easy way to evaluate how well a rental is performing. It shows how much net cash is left after rents are received minus expenses including mortgage payments.  
 
-Formula: Cash Flow = Monthly Pre-Tax Rents minus Monthly Mortgage and Operating Expenses (utilities, maintenance, property taxes, and insurance).

-Example:
Monthly Rents, $2,500
Minus
Monthly Mortgage and Operating Expenses, $2,100
 = $400 Monthly Net Cash Flow

Net Operating Income
NOI measures the profitability of a rental not just its cash flow. It looks at rental income and operating expenses, except mortgage payments and income taxes, to evaluate how well a property performs as a stand-alone business.

-Formula: Gross Rents minus Operating Expenses (utilities, maintenance, property taxes, and insurance):

-Example:
Gross Rents (Annual), $30,000
Minus
Operating Expenses, $6,000 ($500 X 12 months)
= $24,000 NOI

Gross Rent Multiplier
GRM is the ratio of a property’s price compared to its annual rents. It determines how many years it would take to earn back what you invested using rental income. A lower GRM means it will take less time to pay off your rental, increasing profitability.

-Formula: Gross Rent Multiplier = Property Price / Annual Gross Rents

-Example:
Property Price, $300,000
Divided by
Annual Gross Rents, $30,000
=10
In this example, it would take about 10 years in rents to pay off the property. GRM can range between 4 to 10, varying based on rentals in a specific market.

Cash-on-Cash Return
Measures cash income earned compared to the cash invested in a property. In general, the higher the percentage of cash-on-cash return, the better the investment.

-Formula: Cash-on-Cash Return = Annual Pre-Tax Rents / Total Cash Invested

-Example:
Annual Pre-Tax Rents, $30,000
Divided by
Cash Invested in Property, $60,000 (20% down on a $300,000 condo)
= 0.50 or 50% cash-on-cash return
The investment generated a 50% return on the cash invested during the year.

Capitalization Rate
The cap rate determines the returns on the property without financing costs. This allows you to compare the estimated ROI on multiple properties, avoiding variations in down payment and financing scenarios. The higher the cap rate, the better the investment.

-Formula: Cap Rate = Net Operating Income / Property Purchase Price (not including financing costs)  

-Example:
Determine Net Operating Income:
Annual Rents, $30,000 ($2,500 a month X 12)
Minus
Operating Expenses (utilities, maintenance, property taxes, and insurance), $6,000 ($500 a month X 12)
= $24,000 in NOI

NOI ($24,000)
Divided by
Property Cost ($300,000)
= 0.08 or 8% cap rate
The cap rate for rentals can range from 4% to 12%, but can vary depending on an area’s market factors.

Choosing a rental property is more than just comparing its purchase price and potential rents. Running these calculations is a critical part of a rental assessment, helping to maximize profit and reduce risk. A good rental can help generate healthy returns while a poor choice can drain your earnings and time. If you’re looking to invest in a rental, we can help calculate these ratios and explain financing options to help you achieve your investment goals. Contact us for details.

As we embark on 2024, we continue to expect a soft landing for the U.S. economy and a gradual easing in mortgage rates. The Federal Reserve has kept their benchmark Fed Funds rate steady since late last July. Experts think the Fed will hold steady once again in March and continue to monitor inflation data.

The May Fed meeting is the one to really watch. Why? The Fed has to decide when to stop shrinking its balance sheet, which had ballooned by nearly $3 trillion during the pandemic as money was pumped into the economy, in part by buying up mortgage-backed securities, driving rates to record lows.

In 2023, as the Fed has shrunk that balance sheet, rates have risen. The Fed’s balance sheet is almost back to pre-pandemic levels, so the Fed has to decide when to slow down the unwinding process, which should have a downward effect on rates. The strength of the economy this Spring will also play a role.

Meanwhile as abnormally large spreads between the 30-year fixed rate mortgage and the yield on 10-year Treasury bonds continue to narrow towards historical levels, mortgage rates have eased. It’s not exactly a plunge, but rates in the 6.5% range, down from around 8% last October, have already had a welcome effect on affordability.

Redfin reports that a budget that would have afforded a $416,000 home will now buy a $453,000 home, now that rates are lower. As a result, fence-sitting homebuyers are now wading into the market. “Home prices keep marching higher,” said National Association of Realtors® Chief Economist Lawrence Yun. “Only a dramatic rise in supply will dampen price appreciation.” It’s unlikely.

While new-construction sales are expected to rise 13.9% in 2024, new homes account for only about 10% of sales, far outweighed by the number of Millennials and Gen-Z’ers hoping to enter the market.

Another trend: Older homeowners with significant equity are downsizing but renting their old home instead of selling it. This actually takes a property out of the homeownership column.

Waiting for rates to fall further may not be the best strategy for buyers. Keith Gumbinger of HSH Associates agrees. “More often it seems the case that home prices generally keep rising, so the goalposts for amassing a down payment keep moving.”

The old adage “marry the house and date the rate,” may well apply. While you might not like the rate today, the housing market has almost always rewarded buyers over procrastinators — especially if rates trend downward, opening up future refinance opportunities. If you or someone you know are anxious to buy a home, let’s get that conversation started! Contact us today.

Get the latest mortgage industry news. Click here.

Copyright © 2024 Myers Capital Hawaii 

Get the latest mortgage industry news. Click here.

– Economy & Mortgages: Rates Finally Easing: Is Now the Time to Buy?

– Higher Conforming Loan Limits Creates Opportunities in 2024

– The Best Mortgage? It’s Not Always What You’d Expect.  

– Clash of the Generations: Millennials vs. Downsizing Boomers

– What’s a Non-Warrantable Condo? And Can It Be Financed?

Economy & Mortgages: Rates Finally Easing: Is Now the Time to Buy?

Higher Conforming Loan Limits Creates Opportunities in 2024

The FHFA’s conforming loan limit increase is based on a formula using home-price data in the third quarter of each year. Coming into 2023 we saw an increase of 12.21%. Housing prices nationally have risen at a slower pace in the face of higher interest rates, but still faster than the historical average.

Accordingly, for 2024, the baseline Conforming loan limit for mortgages backed by Fannie Mae and Freddie Mac will rise by 5.5%. For 2024, the maximum Conforming loan is $766,550 in most markets, and up to $1,149,000 in high-cost markets.

This annual increase can enable homeowners with “smaller” Jumbo loans to refinance into a Conforming loan, at often-better mortgage rates. It depends on when you got your old loan, it’s size, and the particular loan terms you have.

There’s only one way to find out – – give us a call to see how we can potentially reduce the cost of your home financing!

The Best Mortgage? It’s Not Always What You’d Expect.

Despite doom-and-gloom headlines about high interest rates and tight supply, throughout 2023, millions of homes were still bought and sold, nationwide. As mortgage professionals, we spend hours comparing options to find the most affordable financing for our clients.

The key metric we focus on is not the rate, and not the term, but the total interest cost of financing over the expected time our client actually anticipates staying in the home, or in the loan, rather than the official loan term of 15 or 30 years.

We also strategize on the right downpayment amount — while borrowing less reduces the interest you pay over the life of the loan, the opportunity cost of tying up money in a down payment (versus, say, investing it elsewhere) may be a major consideration.

Finally, we look at upfront costs and expected cash flows, how they relate to your expenses, and whether you might consider prepaying the mortgage aggressively to save more interest.

While many buyers of course fit the standard 30-year fixed rate mortgage just fine, here are just some of the other choices clients have made:

Rate Buydowns – This has been a popular option over the last year. For an upfront cost, there are usually options to reduce the rate for 1-3 years, or permanently. This usually works great for folks who know they’ll be in the loan for awhile, since the interest savings gradually recoup the upfront cost.

Hybrid Loans with Fixed Initial Periods – For clients with shorter “expected terms”, hybrid adjustable-rate mortgages with five-year or seven-year fixed periods may match their financial plans better. The rates on these can be lower than a standard 30-year fixed rate loan.

Fifteen-Year Fixed Rate Loans – With its significantly lower lifetime interest costs, this loan still makes sense for people with good cash flow.

Low-Downpayment Loans – These are perfect for getting into the market with little or no money down — with conventional options as low as 3% down, FHA options at 3.5% down, and VA loans requiring no money down. It usually pencils out better to get in and enjoy home appreciation than to stay on the sidelines and watch prices (and your rent) rise while trying to amass 20% down.

Renovation Financing – Different than construction loans, these loans are federally-backed and let you add the cost of renovation (say, to fix a worn roof, or upgrade windows, floors, etc.) to the value of the home, and borrow an amount that covers the upgrade as part of the purchase of the home!

Right now these are fantastic solutions to the limited-inventory situation we’re seeing. You can buy an unloved property (sometimes for a nice discount) and make it your dream home – all in one go. And eager sellers will sometimes sweeten the deal in the process!

Programs for non-traditional buyers and investors – There are a wide range of programs for self-employed borrowers, business owners, investors, and other non-traditional borrowers.

Whatever you wish to accomplish in real estate in 2024, we can match you with the loan that best helps you achieve those goals, and at the lowest possible cost.

Clash of the Generations: Millennials vs. Downsizing Boomers

The knock on the Millennial generation has always been a lack of material aspirations — collecting experiences rather than “things.” Until recently, this seemed to extend to homeownership as well: fewer Millennials owned homes as they turned 30 than previous generations had (42% for Millennials, vs 48% for Gen X, vs 51% for Boomers).

The reasons behind this may have been more economic that philosophical. Many came of age during the global recession. “The economic hardships encountered at the start of their adulthood, coupled with student debt, resulted in Millennials reaching homeownership later than other generations,” said Alexandra Both, a research analyst at the apartment list site RentCafe.

But Millennials are now catching up. The average age of Millennials now matches the average age when people buy their first home, and they are putting intense pressure on the housing market.

Ironically, COVID-19 has helped to boost Millennial homeownership rates. Student loan payment pauses and stimulus checks helped people’s finances. The work-from-home wave also made more-affordable, outlying communities popular. Buyers benefited from record-low interest rates. Now, in a generational head-on clash, Millennials are competing for homes with Baby Boomers, many of whom are downsizing into the same size properties Millennials hope to buy!

Real estate industry analyst Meredith Whitney describes a “Silver Tsunami” of 10,000 Baby Boomers turning 65 daily as a challenge for Millennials. Whitney cites AARP data that “[about] 51% of people over 50 downsized their home. And people over 50 are 74% of total U.S. homeowners. So, if you just take half of that, you’ve got about 30 million homes that should be coming on the market.”

“Should be…” is the key phrase. Multiple analysts point out that many Boomers are retiring in place, which freezes inventory. And others (as mentioned on page 1) are pulling equity out of their old home, using it to downsize, and renting out their old home.

That takes a home out of the homeownership column and puts it in the rental column – certainly not good news for would-be Millennial homebuyers. We have clients going in both directions, of course. Whatever your plans, we look forward to leveraging our expertise and extensive loan options to help you achieve your current homeownership goals, or those of your family members!

What’s a Non-Warrantable Condo? And Can It Be Financed?

Condos are a natural option for many people, especially with home prices continually rising. If you’re on the hunt for a condo, you may run across “warrantable” or “non-warrantable” properties.

Before you fall in love with a condo, it’s a good thing to check, since it will affect the range of financing options available. In a non-warrantable condo, you can’t access Conventional, FHA, VA, or USDA mortgages, so we have to find specialized programs. These can require larger down payments and potentially higher interest rates.

Four key factors drive warrantability:

– Building ownership: A single person or entity cannot own over 20% of a complex’s units, otherwise a complex’s financial health is too dependent on the financial well-being of a single owner.

– Occupancy types: If over 50% of the units are investment properties (which often are less well-maintained), or over 35% is commercial space, that complex may be considered non-warrantable.

– Financial reserves: To be warrantable, the homeowners’ association must allocate at least 10% of its dues to a reserve for maintenance and emergencies, and less than 15% of owners must be in arrears.

–Legal risk: A condo building may be non-warrantable if the complex or its developer is involved in litigation, especially if the matter involves building safety, structural soundness, and habitability.

A non-warrantable condo can still be a great investment, but it’s key to be aware of the financing hurdles. We can help you size those up and make a great decision.

Copyright © 2024 Myers Capital Hawaii