investment property

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Boston fintech firm Knox Financial plans to expand its lending business and loan products with $50 million in funding it received from a real estate advisory firm. 

New York-headquartered Saluda Grade provided the funding in forward flow capital which Knox will use to expand its lending business into Georgia, Knox representatives said Wednesday. The fintech also will offer additional loan products, including home equity lines of credit (HELOCs), new purchase loans and cash-out refinancings. 

“A homeowner’s best investment is the home they live in — far better than the returns we’ve seen from the stock market in 2022, and a great hedge against record-high inflation,” said David Friedman, co-founder and CEO of Knox Financial. 

Established in 2018, Knox aims to help manage residential rentals with its algorithm-based platform. Its rental pricing and projection model also calculates the rate of return an investment property is expected to produce over time. When a property is enrolled in the platform, Knox automates and oversees the property’s finances and taxes, insurance, leasing, banking and bill pay, according to the company’s website. 

The funding comes shortly after Knox launched its first mortgage product, dubbed the Knox equity access program (KEAP), in April. KEAP loans give homeowners access to capital, based on the equity in the home, to turn it into an investment property with Knox. Homeowners can then use their KEAP loan to fund a downpayment on their next home and to pay for repairs on their investment property.

In return, Knox charges an origination fee and third-party costs to the borrower. Knox also keeps 10% of the rental income generated from properties listed on its platform. 

Prioritizing home equity solutions in a rising rate environment

The 2022 housing market has been underscored by interest rate spikes and refi decline and lenders are working hard to adjust to new borrower trends. HousingWire recently spoke with Barry Coffin, managing director of home equity title/close at ServiceLink, about the ways lenders can capitalize on these trends by revving up their home equity solutions.

Presented by: ServiceLink

Knox’s expansion comes amid a shrinking mortgage origination market. As mortgage rates began increasing this year, lenders, mortgage tech firms and real estate brokerages started laying off employees, often citing rapidly declining market conditions. 

With rising mortgage rates, company representatives said Knox has seen growing interest in second lien products such as home equity loans or HELOCs from borrowers who have tappable equity but don’t want to refinance. 

“As mortgage rates have risen, more inventory will become available at more competitive pricing,” said Matt Marra, chief growth officer at Knox.

Knox Financial raised $10 million in Series A funding in April 2021, led by G20 Ventures, following a $3 million seed round in January 2020. The largest markets for Knox are metropolitan areas of Boston, Atlanta, Houston, Dallas and Austin, Texas. According to Marra, Knox oversees a portfolio of $150 million in combined value.

Source: housingwire.com

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Let’s talk mortgage basics: “What is the loan-to-value ratio?”

If you’re currently shopping for a home or already going through the mortgage loan process, chances are you’ve heard the phrase loan-to-value ratio get thrown around on more than one occasion.

You may have also encountered the acronym “LTV” while perusing mortgage advertisements or playing around on mortgage rate comparison websites.

Regardless of what’s going on in the housing market, you should know all about this very important term when applying for a home loan.

Why? Because it can greatly affect mortgage rate pricing, refinance options, and overall loan eligibility.

How to Calculate the Loan-to-Value Ratio (LTV)

loan to value ratio

  • It’s actually one of the easiest calculations you can make
  • Simply divide the loan amount by the appraised value or purchase price
  • And you’ll wind up with a percentage known as your LTV
  • The tricky part might be agreeing on a sales price and getting the home to appraise at value

Simply put, the loan-to-value ratio, or “LTV ratio” as it’s more commonly known in the industry, is the mortgage loan amount divided by the lower of the purchase price or appraised value of the property.

If we’re talking existing mortgages (in the case of refinance loans), it’s the outstanding loan balance divided by the appraised value.

When calculating it, you will wind up with a percentage. That number is your LTV. And the lower the better here folks!

It’s actually very easy to calculate (no algebra required) and takes just one step. You don’t even need a mortgage calculator. In fact, you might be able to run the numbers in your head. Honest!

Let’s calculate a typical LTV ratio:

Property value: $500,000
Loan amount: $350,000
Loan-to-value ratio (LTV): 70%

In the above example, we would divide $350,000 by $500,000 to come up with a loan-to-value ratio of 70%.

Using a basic household calculator, not a so-called “LTV calculator,” simply enter in 350,000, then hit the divide symbol, then enter 500,000. You should see “0.7,” which translates to 70% LTV. That’s it, all done!

This means our hypothetical borrower has a loan for 70 percent of the purchase price or appraised value, with the remaining 30 percent the home equity portion, or actual ownership in the property.

LTV ratios are extremely important when it comes to mortgage rate pricing because they represent how much skin you have in the game, which is a key risk factor used by lenders.

A Lower LTV Ratio Means More Ownership, Better Mortgage Rate

low LTV low rate

  • The lower your loan-to-value ratio the more home equity or down payment you have
  • Which is another way of saying ownership or skin in the game
  • A low LTV equates to a lower mortgage rate because you’re viewed as less risky
  • It means the bank is risking less since you are more invested in the underlying property

Essentially, the lower the loan-to-value ratio, the better, as it means you have more ownership (home equity) in the property.

Someone with more ownership is less likely to fall behind on payments or foreclose, seeing that they have a greater equity stake, aka financial interest to keep paying the mortgage each month.

They’ve also got more options if they do struggle with payments, as they could just sell the property without taking a loss (or the bank losing money).

Not only that, but banks and mortgage lenders also set up pricing adjustment tiers based solely on the LTV ratio.

Those with lower LTV ratios will enjoy the lowest interest rates available, while those with high LTVs will be subject to higher mortgage rates and/or closing costs.

For example, if you’re being “hit” by the lender for having a less-than-stellar credit score, that adjustment will grow larger as the loan-to-value ratio increases (higher LTV ratio = greater risk).

So if your mortgage rate is bumped a quarter percent higher for a loan-to-value ratio of 80%, that same pricing hit may be increased to a half percentage point if the LTV ratio is a higher 90%.

This can certainly raise your interest rate in a hurry, so you’ll want to look at all possible scenarios with regard to down payment and loan amount to keep your LTV ratio as low as possible.

More importantly, just maintain an excellent credit score and you’ll have plenty of loan options, regardless of your chosen down payment or available home equity.

80% LTV Is a Very Important Threshold!

80% LTV

  • Keep your mortgage at/below 80% LTV if you want to save money
  • You won’t have to pay private mortgage insurance (PMI)
  • And it should result in a lower mortgage interest rate with fewer pricing adjustments
  • You’ll also enjoy greater lender choice as most banks will lend up to 80% LTV

Most borrowers (who have the means) elect to put 20% down when buying a home, as it allows them to avoid mortgage insurance and the much higher pricing adjustments often associated with LTVs above 80%.

Fewer adjustments mean you can secure a lower interest rate on your mortgage. And if you can avoid PMI at the same time, it’s a win-win for your monthly housing payment!

You may also find it easier to get approved, as virtually all banks and mortgage lenders will accept LTVs of 80% or less.

But you don’t necessarily need to put 20% down to enjoy the benefits of a low-LTV mortgage.

Also Get to Know the Combined Loan-to-Value Ratio (CLTV)

Looking at the above example again, if you were to raise the first mortgage amount to $400,000 and add a second mortgage of $50,000, the combined loan-to-value ratio, or CLTV as its known, would be 90%.

Banks and mortgage lenders have both LTV and CLTV limits, meaning they won’t allow homeowners to borrow more than say 80, 90, or 100 percent of the property value.

These limits came down after the Great Recession but are creeping back up again…

Let’s do the math here; again, no mortgage calculator required!

Simple math: $400,000 + $50,000 = $450,000 / $500,000 = 90% CLTV

You would have a first mortgage at 80% LTV, and a second mortgage for an additional 10% LTV, making the CLTV 90%. Simply add up both numbers.

Sometimes borrowers elect to break up home loans into a first and second mortgage, known as combo mortgages.

This keeps the loan-to-value ratio below key levels, thereby reducing the interest rate and/or helping the homeowner avoid private mortgage insurance.

Tip: The undrawn portion of a home equity line of credit (HELOC) typically isn’t included in the CLTV calculation.

Max LTV by Home Loan Type

max LTV

  • FHA loans go as high as 96.5% LTV (3.5% down payment)
  • Conforming loans (Fannie/Freddie) go as high as 97% LTV (3% down)
  • USDA and VA loans go to a full 100% LTV (zero down)
  • Jumbos, cash-out refis, and investment properties are much more restrictive
  • And there is no maximum LTV in many cases for streamline refinances

There are certain LTV limits based on home loan type, with conventional loans (non-government) typically being more restrictive than government loans.

And mortgage refinance programs often less accommodating than home purchase loans.

At the moment, you can get an FHA loan as high as 96.5% LTV, which is just 3.5% down payment.

You can get a conventional loan as high as 97% LTV, which at just 3% down is higher than it used to be.

In recent history, the maximum was 95% LTV, but now Fannie Mae and Freddie Mac are competing directly with the FHA.

[See FHA vs. conventional for more on that.]

You can get either a VA loan or USDA loan at 100% LTV (which represents no money down).

These are the most flexible loan programs LTV-wise, but they are also only available to veterans or those living in rural areas, respectively. So not everyone will qualify for these types of mortgage loans.

There are also proprietary home buying programs from various private mortgage lenders that allow for 100% LTV financing if you take the time to shop around.

If it’s a jumbo home loan, a cash-out refinance, or an investment property, the loan-to-value will be a lot more limited, potentially capped at just 70-80% LTV, depending on all the attributes.

And finally, those underwater or upside down borrowers you hear about; they owe more on their mortgage than the property is currently worth.

This can happen due to negative amortization and/or home price depreciation.

A quick underwater loan-to-value ratio example:

Property value: $400,000
Loan amount: $500,000
Loan-to-value ratio (LTV): 125%

As you can see, the underwater borrower has a LTV ratio greater than 100% (this equates to negative equity), which is a major issue from a risk standpoint.

For the record, you get 1.25 by dividing 500 by 400.

The problem with homeowners in these situations is that they have little incentive to stick around, even with a modified mortgage payment, as they’re so far in the red that there’s little hope of recouping home value losses.

However, the popular Home Affordable Refinance Program (HARP) allowed millions of underwater homeowners to refinance to lower rates with no LTV limit. And many of these folks are probably now back in the black.

Today, this type of program still exists, but is a permanent option known as a high-LTV refinance, or HIRO for short.

So there are options to refinance and get a lower interest rate, as long as your loan is owned by Fannie Mae or Freddie Mac, no matter the mortgage balance relative to the property value.

Same goes for FHA loans and VA mortgages thanks to the FHA streamline refinance and the VA IRRRL option.

Despite being far behind new homeowners entering the market in terms of building home equity, many of these formerly-underwater borrowers now have lots of equity thanks to rising home prices and several years of paying down their mortgages.

That’s why you have to consider the long-game in real estate and never give up, even when times get tough. This also illustrates why home buying shouldn’t be a quick or hasty decision.

A Lower Loan-to-Value Can Save You Money!

  • A lower LTV generally results in a better interest rate
  • Which means cheaper monthly mortgage payments
  • It puts more of your hard-earned dollars toward the principal balance each month
  • Potentially saving you thousands of dollars over the life of the loan!

As noted, a lower LTV will likely result in big savings thanks to a lower interest rate.

Additionally, you may be able to avoid costly private mortgage insurance, enjoy expanded loan program eligibility, and have an easier time getting approved for a mortgage.

If your LTV is higher than you’d like it to be, there are some creative options to lower it.

Borrowers Can Reduce Their LTV in a Variety of Ways

  • Come in with a larger down payment if it’s a home purchase loan
  • Ask for gift funds to increase your down payment
  • Or break your mortgage up into two separate loans (combo loan)
  • Make extra payments or a lump sum payment for a refinance to get the LTV down before you apply
  • Or simply wait for natural amortization and home price appreciation to lower your LTV over time

If we’re talking about a home purchase, simply bring in more down payment money and the LTV will be lower. Easier said than done, sure, but possible for some.

Perhaps someone will gift you the money or act as a co-borrower?

Alternatively, you can look into breaking up your financing into two loans, with both a first and second mortgage.

If it’s a mortgage refinance, simply pay down the mortgage balance a bit more before you apply, whether on schedule or by making extra mortgage payments.

This can be especially helpful if you’re super close to a certain LTV threshold, or just above the conforming loan limit.

Speaking of, pay close attention to your LTV – if it’s just above 80% or some other meaningful tier, think about adjusting your loan amount down (your loan officer should advise you here!).

Lastly, there’s another way existing homeowners can get their LTV down and it requires no effort whatsoever.

You don’t have to do anything except sit back and watch your property value increase over time, thereby lowering your LTV in the process. Of course, the opposite can happen too if home values drop!

But as noted, real estate should be treated with a long time horizon, so be sure you have the ability to ride the ups and downs and make moves when it’s most favorable to you.

Read more: 10 ways to build home equity.

Source: thetruthaboutmortgage.com

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Today we’ll check out “Celebrity Home Loans,” a mortgage lender that aims to treat you like a star. Perhaps more specifically, a Rockstar.

This means VIP service from start to finish to ensure you don’t have to “sweat the details” of your home loan financing.

Instead, you can focus on finding your dream home and leave the rest up to your mortgage lender.

This approach might explain how the company came up with its name, and what’s is mission is for its clients.

So far they seem to be living up to those lofty expectations, with excellent customer reviews from tens of thousands of customers. Read on to learn more.

Celebrity Home Loans Fast Facts

  • Direct-to-consumer, retail mortgage lender
  • Offers home purchase loans and mortgage refinancing
  • Founded in 2006, headquartered in Oakbrook Terrace, IL
  • Funded nearly $7.5 billion in home loans last year
  • Most active in California, Colorado, and Illinois
  • Do a near equal split of purchase loans and refis
  • Licensed to do business in 48 states and D.C.
  • More than 700 licensed loan originators nationwide

Celebrity Home Loans is a direct-to-consumer, retail mortgage lender with physical branches scattered throughout the country.

At last count, they employed more than 700 licensed loan originators nationwide.

They also own about two dozen other mortgage brands, including eClick Lending, Heritage Home Loans, Midwest Equity Mortgage, NEO Home Loans, and many others.

So there’s a chance you could obtain a mortgage from one of their many sister companies.

CHL got its start back in 2006, at around the time the housing market was peaking and began to fall.

Still, they managed to navigate the biggest housing crisis in recent history and fund tens of billions in home loans since.

Last year, they mustered an impressive $7.5 billion in loan origination volume, making them one of the bigger players on the national scene.

They do a near equal split of home purchase loans and refinances, which tells me they’re suitable for either purpose.

And while licensed in 48 states and the District of Columbia, they’re most active in California and Colorado, along with their home state of Illinois.

How to Apply with Celebrity Home Loans

To get started, your best move might be to visit their website from your computer or smartphone.

There you’ll be able to search for a nearby loan officer or branch office via their online directory.

You can see who works in an office nearby and quickly obtain contact information. Then reach out to get today’s pricing or inquire about available loan programs.

If you’re in the market to buy a home, their “Mortgage Assured” program goes beyond a standard pre-qualification and pre-approval to help you compete with cash buyers.

My assumption is it’s a fully-underwritten mortgage approval that gives home sellers confidence you’ll be able to obtain financing.

Once you find an individual you’d like to work with, you can click on the “Apply Now” button from their personal webpage to get started.

You’ll be prompted to create an online account with the option to also download Celebrity Home Loans’ free smartphone app.

Many loan tasks can be completed electronically, whether it’s the application itself, eSigning disclosures, or scanning/uploading documents.

Those who download the app have the option to message their loan officer instantly and receive updates as they go.

All in all, Celebrity Home Loans is big on technology and customer service, so you should get the best of both worlds here.

Loan Programs Offered by Celebrity Home Loans

  • Home purchase loans
  • Home renovation loans
  • Refinance loans: rate and term, cash out, streamline
  • Conforming loans backed by Fannie Mae and Freddie Mac
  • Jumbo loans
  • FHA loans
  • USDA loans
  • VA loans
  • Fixed-rate mortgages: 30-year, 15-year, and other terms available
  • Adjustable-rate mortgages: 5/1 and 7/1 ARM

Celebrity Home Loans offers a wide array of loan programs to fit nearly any situation.

Whether you’re buying a home, renovating one, or refinancing an existing mortgage, they’ve got solutions.

This includes conforming loans backed by Fannie Mae and Freddie Mac, jumbo loans, and the full suite of government options (FHA/VA/USDA).

And they lend on all major property types, whether it’s a primary residence, vacation home, or investment property.

Both fixed-rate and adjustable-rate mortgages are available in a variety of loan terms, including 5/1 and 7/1 ARMs.

Celebrity Home Loans Rates

One area where they lack information is loan pricing. There isn’t a section dedicated to mortgage rates or lender fees.

This contrasts some other banks and mortgage lenders that post daily mortgage rates and/or a list of lender fees.

As such, you’ll need to get in touch with a loan officer to obtain pricing your unique loan scenario. And to find out if they charge lender fees, such as a loan origination fee.

Be sure to compare the rate and fee they provide, collectively the mortgage APR, with that of other banks and lenders.

Doing so will allow you to determine how competitive they are relative to other options out there.

Service is definitely high up the list when it comes to selecting a mortgage company, but so is pricing, as it will stay with you for potentially decades to come.

Celebrity Home Loans Reviews

Over at Experience.com, Celebrity Home Loans has a solid 4.89-star rating out of a possible 5 from nearly 24,000 reviews.

You can see loan originator reviews as well if you want to see how a particular individual fared in the past.

This might be beneficial given the large number of folks employed by the company.

On Google, they have a perfect 5-star rating from about 1,500 customer reviews. Again, a great sign.

If you know the loan officer’s name, you might also be able to find personal reviews on Zillow.

And while they aren’t an accredited business with the Better Business Bureau (BBB), they do hold an ‘A+’ rating based on customer complaint history.

To sum things up, Celebrity Home Loans is committed to providing exceptional service to its customers.

And their many positive reviews show they’re holding up their end of the bargain.

So whether you’re buying a home or refinancing an existing mortgage, you should be in good hands.

The only question is how competitive they are relative to other options. Because they don’t lead with price, you may also want to compare their rates/fees to other companies before you proceed.

Celebrity Home Loans Pros and Cons

The Good Stuff

  • Can apply for a home loan online or via smartphone
  • Also have physical locations in several states
  • Offer a mostly paperless, digital loan process
  • Lots of loan programs to choose from
  • Excellent customer reviews
  • A+ BBB rating
  • Free smartphone app
  • Free mortgage calculators and glossary online

The Maybe Not

  • Not licensed in Nebraska or New York
  • Do not publicize mortgage rates or lender fees

(photo: Neal Fowler)

Source: thetruthaboutmortgage.com

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It’s almost mid-December, which means it is time for another round of mortgage and real estate predictions for the upcoming year.

I think it’s safe to say that 2021 has been another stellar year for both the mortgage industry and the housing market.

But it’s going to be hard to top or even match what we’ve experienced this year in terms of mortgage origination volume and home price gains.

However, the party might not be over yet, with additional home price gains on the horizon due to similar factors in play.

Let’s see what 2022 might have in store as we once again look into the crystal ball.

1. Mortgage rates will go up, but only slightly.

Experts have been calling this for years to no avail. We have been told year in and year out that the low mortgage rates are leaving the station.

But year after year, they remain. In 2022, I do expect them to rise somewhat, but not by a meaningful amount.

Sure, your 30-year fixed rate may go from 3% to 3.5%, but that’s not a huge jump. And any 30-year fixed in the 3s is generally very favorable.

It will put pressure on prospective home buyers who also have to grapple with rising home prices and a lack of inventory.

And it will certainly dent mortgage refinance demand, as most existing homeowners have already locked in a lower rate.

However, as I said in my 2022 mortgage rate predictions post, there will likely be opportunities during the year to snag a very low mortgage rate.

Why? Because the economy continues to be a bit of a mess and we’re still sorting out COVID. Until we put that stuff behind us, interest rates could swing in both directions.

2. Home prices will continue to rise a lot

Don’t be fooled by the old mortgage rates up, home prices down fallacy. There’s not a negative correlation, despite what everyone plainly assumes.

Both can go up at the same time, and that’s exactly what I expect to happen in 2022. Granted, mortgage rates will probably only rise slightly, while home prices will continue to surge.

For some reason, a new year gives folks new hope that a trend will simply come to an end.

But why would home prices just stop going up because it’s a new calendar year? The answer is they won’t.

As I’ve said before, the same fundamentals that have been at play for some time, continue to be in play.

There’s a severe lack of inventory and a surplus of would-be home buyers out there. It doesn’t take a genius to figure out what happens with prices.

When there’s a shortage of something people want/need, a premium must be paid until production ramps up.

Unfortunately, production (new home building) is still way behind and won’t catch up for a while.

In the meantime, expect more of the same, and higher 2022 home prices across the board.

The only difference is that estimates are all over the place, with some calling for just a 2.5% increase (CoreLogic) and others saying 11% (Zillow) or even 16% (Goldman Sachs) .

Personally, I’m bullish and going with the higher figures out there, but recognize gains will probably be lower in 2022 than they were this year.

3. Cash out refinances will finally get hot

cash out share

Housing pundits have been talking about the massive pile of collective home equity we’ve been sitting on for years now.

And it has only grown even larger since then, with equity levels the highest on record.

In short, American homeowners have a ton of equity in their properties that is ripe for tapping via a cash out refinance or a second mortgage, such as a HELOC.

But we have yet to see a massive cash out boom like the one experienced in the early 2000s housing market.

I expect cash out refis and HELOCs to have their day in the sun in 2022 as more and more homeowners realize how much their properties have appreciated.

Per Freddie Mac, about 42% of refinances resulted in cash out this year, which is up a bit from prior years, but nowhere close to the 80%+ share seen in 2006 and 2007.

Despite slightly higher mortgage rates, it may still be worth unlocking this valuable equity to pay for upgrades, college tuition, and other expenses.

After all, a 3% 30-year fixed rate is still phenomenal, and many homeowners can take out a large sum of money while keeping their loan-to-value (LTV) ratio very low.

And you can expect mortgage lenders to aggressively pitch this product now that rate and term refinances have mostly been exhausted.

4. The bidding wars will remain (and may even worsen)

It won’t get any easier buying a home next year. Even if mortgage rates are slightly higher, this won’t “bring prices down to earth.”

I keep hearing that line and it just doesn’t make any sense. Financing has never been the problem here. It’s always been a lack of supply.

And there will continue to be a lack of supply well into 2022, so why should competition be any less?

If anything, I could see more desperation fueled by these expected higher interest rates as buyers won’t want to miss out on their low rate too.

If you think about the last few years, at least mortgage rates were rock bottom. Now that you’ve got to worry about a rising rate and finding a home, the panic could be even more pronounced.

As always, prepare yourself adequately, start looking for a home immediately, and be aggressive if you want to win the bidding war.

Oh, and make sure you use an experienced real estate agent who knows how to get the job done.

5. Home sales volume will be flat or even lower next year

2022 home sales

While Redfin believes new listings will hit a 10-year high next year, I’m not so sure.

As much as there is motivation to sell a home due to sky-high asking prices, there remains the dilemma of where to go next.

Sure, you might be able to move to a different state, but those “cheap states” aren’t so cheap anymore.

At the same time, supply chain issues and a lack of workers is making it hard for home builders to ramp up supply of new homes.

Collectively, this will make it difficult for home sales to increase next year, as much as we all want to make a mint selling our homes.

This also reinforces the idea that home prices will continue to go up, and that the housing market will remain super competitive.

That being said, it will be a very lively housing market in 2022, just not one that necessarily sees a lot of growth.

6. Home buyers will continue to flock to new states

2022 hot housing markets

Yes, the cheap states aren’t so cheap anymore. But that won’t stop people from getting out of town.

Many young, prospective home buyers have been priced out of their local markets in California and other hot spots.

This, combined with the work-from-home new normal (sprinkle in some politics), will fuel a continuation of migration seen in recent years.

This means more folks from the Golden State will make the move to nearby states such as Arizona, Idaho, Nevada, Texas, and Utah.

While more affordable for them, it will exacerbate those local markets and make them more expensive for the people who already rent there.

Some of the hottest housing markets of 2022 include Salt Lake City, Utah, Boise, Idaho, Spokane, Washington, Indianapolis, Indiana, and Columbus, Ohio.

Basically any metropolitan area that was/is considered cheap and desirable will be less so next year as the out-of-state home buyers storm in.

So no matter where you happen to be, expect a fierce seller’s market.

7. First-time home buyers will purchase a second home or investment property (first)

This is an interesting one that I’m borrowing from Zillow because it’s seemingly odd, yet kind of savvy. And so 2021 and beyond.

Typically, a first-time home buyer will purchase a home to live in nearby where they work.

But because the real estate market is so hot and in such short supply, high-earning, cash-rich Millennials and Gen Zers may actually buy a second home or investment property instead.

The thinking is that they can get in on the real estate market by making an investment, even if it’s not in their overpriced backyard.

For example, a well-earning Gen Zer who lives in Santa Monica that may be priced out there could purchase a more affordable second home in Phoenix, Arizona, or an investment property in Las Vegas, Nevada.

Of course, this isn’t necessarily for the faint of heart, and this is exactly the type of thing that leads to trouble down the road.

But as long as mortgage lenders don’t get too careless with underwriting standards, it doesn’t signal the start of a housing crisis.

It does tell you just how crazy real estate has gotten though.

8. Home buyers will return to the city

condo search

While the suburbs have been hot in our post-COVID-19 world, I do believe more buyers will start to consider the city life again.

We will get through this pandemic, and once life returns to mostly normal, lots of folks will wish they owned in an urban center.

Prices in many once-hot areas close to lots of cool restaurants, bars, etc. have been deflated, but I expect that to reverse course in 2022.

The urban living trend isn’t going to disappear, even if more people work from home, or desire abundant outdoor space.

So look out for condo prices to see more price gains in 2022 and beyond, and play catch up with single-family residence gains.

There’s already proof in data here – Redfin noted that users filtered searches to single-family homes only (excluding condos/townhomes) in just 28% of searches in September.

That was down from a high of 37% in July 2020, when living in a city seemed unthinkable.

Condos also tend to appreciate the most at the tail end of a housing boom, which we could be approaching, so it all kind of makes sense.

9. There will be more layoffs, closures, and mergers

While there is some hope that cash out refis and home purchase loans will keep mortgage volumes afloat, it won’t be enough for all mortgage lenders out there.

For example, Freddie Mac is forecasting $2.1 trillion in home purchase origination in 2022, up from $1.9 trillion this year.

But also expects refinance origination volume to fall from $2.5 trillion to $995 billion. That’s gonna be a problem for the shops that specialize in refinances.

Ultimately, total volume dropping from $4.5 billion to $3 billion will be an issue and there’s no way around it.

As a result, you can expect more mortgage layoffs, similar to the Better.com layoffs, along with some outright closures.

I also believe there will be more consolidation in the fragmented mortgage market, with bigger banks and lenders swallowing up smaller ones.

10. The housing market won’t crash in 2022

I already said home prices will go up, but I’ll reiterate that the housing market won’t crash in 2022, either.

There is a large group of people who believe the housing market is due for a correction, mostly just because home prices have gone up a ton.

Sure, it’s easy to raise eyebrows these days when looking up what your house is worth, or your neighbor’s.

But that alone isn’t enough to make them reverse course, especially when there is a continued, historic lack of supply.

Additionally, mortgage lenders have yet to return to the loose underwriting that dominated the space in the early 2000s, and ultimately created the mortgage crisis.

For me, that means another year of strong housing appreciation, and another year without a housing market crash.

At the same time, it does mean we will be one year closer to a crash, which as history tells us, is inevitable.

(photo: Quinn Dombrowski)

Source: thetruthaboutmortgage.com

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A few weeks ago, I wrote about how I refinanced my mortgage for the second time in a year. The second refinance wasn’t actually part of my master plan, but I ended up having to refinance in order to remove my private mortgage insurance. And although refinancing our home again proved to be a huge pain, we are now saving $135 per month by no longer paying private mortgage insurance premiums.

Thankfully, we managed to secure a no-cost refinance that only cost us in time and effort. It’s a huge relief that the process is finally over, and I am fairly hopeful that this is the last time we will ever have to refinance.

Refinancing Has Its Perks

Luckily, I am no stranger to the benefits of refinancing. Not only did we refinance our primary residence, but we also refinanced our two rental homes within the past 18 months. We did so in order to take advantage of record low interest rates and to shorten the terms of their loans.

Now that we have refinanced our rental properties, they will be paid off much faster. In fact, our two rental properties are due to be paid off in about 13 years. Once they are completely paid off, we will then have another (somewhat) passive income stream and will be that much closer to our lifetime dream of early retirement.

Since I have refinanced properties so many times, I decided to write about some of the reasons that people choose to refinance. Like me, you may find that refinancing could save tens of thousands of dollars in interest and years of mortgage debt repayment. Unfortunately, it does take some effort to get the process started. However, the time and effort spent could easily be worth it depending on your situation. Here are some reasons that you may want to consider refinancing your home loan.

5 Reasons You May Want to Refinance

Refinance to shorten the term of your loan. If you have a 30-year mortgage, now may be a great time to consider refinancing. With record low interest rates, you may find that a 15-year mortgage is not much more expensive than the 30-year loan payment you have been paying.

Start by entering your information into a mortgage calculator to see what your new payment might be. If your new estimated payment is feasible, consider contacting a mortgage professional. (When we first refinanced our home from a 30-year mortgage at 5 percent to a 15-year mortgage at 3.25 percent, our payment only increased by about $200. Since the increase fit easily into our budget, the decision was a no-brainer.)

Refinance to lower your interest rate. As I mentioned before, interest rates are near a record low. And as I write this, 30-year mortgage rates are hovering above 3 percent and 15-year loans can be secured for an even lower rate. If your home is now financed at a higher interest rate, it may be a great time for you to consider refinancing. You could literally save tens of thousands of dollars just by taking the time to fill out the necessary paperwork and gather the needed documents.

Refinance to lower your payment. Refinancing your mortgage at a lower interest rate could mean drastically reducing your payment and saving tens of thousands of dollars in interest. Lowering your mortgage payment could also free up hundreds of dollars per month that could be saved or invested. Although refinancing to lower your payment could increase the term of your loan, it could make sense in your particular situation.

Refinance from an adjustable-rate mortgage to a fixed-rate loan. If you currently have an adjustable-rate mortgage, now may be the perfect time to refinance into a fixed-rate loan. Interest rates are low now, but they may not stay this low forever. Locking into a low, fixed rate can protect you from rising interest rates in coming years. Additionally, a fixed payment is easier to plan for and budget.

Refinance to cash out home equity. It’s a tempting proposition to cash out your home equity by refinancing your home. It could even be a great financial move in some circumstances. For instance, it may make sense to cash out some of your home equity in order to buy an investment property or start a business. It mostly depends on what you are trying to achieve and if you are someone who can manage your debts responsibly.

Can Refinancing Help You Meet Your Goals?

Before refinancing, consider what your goals really are. Do you want to lower your monthly mortgage payment? Do you want to pay off your mortgage and get out of debt faster? Only you can answer these questions.

It is also important to take all closing costs and fees into consideration. Depending on which new loan you choose, you may have to pay thousands of dollars in fees for your new mortgage. It may take several years to recoup the costs of refinancing, and it is important to identify your breakeven point. If you plan on moving in the near future, it may not make sense to refinance your home loan at all.

Do You Even Qualify For a Refinance?

Due to government-backed programs, you may be able to refinance your home even if you owe more than your home is worth. The Home Affordable Refinance Program, known as HARP, loosens requirements for traditional refinancing. According to MakingHomeAffordable.gov, your loan must meet several requirements in order to qualify:

  • The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
  • The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
  • The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
  • The current loan-to-value (LTV) ratio must be greater than 80%.
  • The borrower must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.

Consider Refinancing Decisions Carefully

There are many things to consider before refinancing your mortgage. Most importantly, you should weigh the pros and cons of your particular situation and act according to your own best interest. With some thorough research and planning, refinancing your mortgage could turn out to be the best thing for your family and for your pocketbook. Have a look at the table below for the best mortgage rates.

Have you considered refinancing your mortgage? If so, why did you decide to refinance? If not, why haven’t you?

Source: getrichslowly.org

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Your debt-to-income ratio—the total of all your monthly expenses divided by your gross monthly income—is one of several factors that impact your mortgage rate, our experts say. Your debt-to-income ratio (DTI) determines the loans you can get and a higher DTI generally means you won’t get access to loans with lower mortgage rates.

“The better programs have thresholds with lower debt-to-income ratios. And better programs translate into better rates,” says Kevin Leibowitz, a mortgage broker at Grayton Mortgage.

Impact of DTI on buying choices

In New York City, co-op boards have their own DTI requirements for buyers, usually 22 to 24 percent. “Co-ops are usually stricter than banks when looking at DTI,” says Deanna Kory, a leading agent at Corcoran. 

Of course lenders are also assessing your financial viability. “Every bank has guidelines with regard to the maximum debt-to-income they allow in order to approve a loan,” says Melissa Cohn, regional vice president at William Raveis Mortgage.

When you’re shopping for a mortgage, a loan officer or mortgage broker will offer you a rate based on your borrowing profile. This includes your credit score, your down payment, whether you’re buying a condo, second home, or investment property, and whether the mortgage is a cash-out refinance. “All these factors are layered on top of each other and it becomes a decision-tree matrix,” Leibowitz says. 

Many lenders will allow for DTI ratios up to 50 percent but the terms available for the loans with a higher DTI are typically worse than those with lower DTI ratios. “Many adjustable and most jumbo lenders cap the maximum DTI at 43 percent in order to qualify,” Cohn says. If you are financing more than 80 percent and applying for private mortgage insurance (PMI), Cohn says the cost of the PMI increases with a higher DTI. 

Put another way—if you have a small down payment, a low credit score, and a high DTI, Leibowitz says, “either the programs are going to disappear or the programs that are available come with worse terms.”

For example, let’s say a condo buyer has a low credit score and a high DTI and they are putting 50 percent down on a $500,000 apartment. That’s not necessarily a bad loan for a lender, Leibowitz says. A buyer is unlikely to default on $250,000 of equity or cash they’ve just put down.

However a higher DTI might rule out access to a loan with a better rate, Leibowitz says. 

How to improve your DTI

One of the best ways to improve your DTI ratio is to limit or pay down any consumer-related debt. This might mean paying off your credit card debt, delaying a big purchase, holding off on a leasing arrangement for a new car, or setting up a loan repayment program for any student debt.

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Source: brickunderground.com

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If you own a second home or hold a high balance loan amount, you may want to refinance sooner rather than later. That’s assuming you were thinking of refinancing.

The same goes for those planning to purchase a second home or take out a mortgage with a high balance, which is a loan amount above the baseline conforming limit.

The conforming limit for 2022 is $647,200, so if your loan amount will be north of that, take note.

Fannie Mae and Freddie Mac are raising loan-level price adjustments (LLPAs) for both types of transactions come April 1st.

Depending on the details of your loan scenario, this could drastically increase your closing costs and/or mortgage rate.

Second Home Mortgages and High Balance Loans Going Up in Price

old llpas

In an effort to bolster its support for affordable housing and sustain equitable access to homeownership, the Federal Housing Finance Agency (FHFA) will be raising (LLPAs) for certain transactions.

These LLPAs get passed onto consumers in the form of either more expensive closing costs or higher mortgage rates.

As noted, they pertain to the financing of second homes, whether a purchase or refinance, and high-balance loans, those which exceed the conforming limit.

The idea here is that these types of home loans go toward more affluent individuals. And they also create more risk for Fannie Mae and Freddie Mac, which are backed by taxpayers.

After all, large loan amounts and vacation properties are more likely to default and/or create larger losses for the Enterprises.

And that could jeopardize the mission of Fannie and Freddie, which is mainly to provide affordable financing to first-time home buyers, as well as low- and moderate-income borrowers.

Looked at another way, these new fees will subsidize programs like HomeReady, Home Possible, HFA Preferred, and HFA Advantage, which provide cheaper financing to lower-income borrowers.

Speaking of, fees won’t be going up on those programs, or for first time home buyers in high-cost areas with incomes at/below 100 percent of area median income.

How Much More Expensive Will Mortgage Rates Be in April?

new llpas

Before you get too worried, the cost of these changes may be minimal, depending on the loan scenario in question.

For example, upfront fees for high balance loans will increase anywhere from 0.25% to 0.75%, depending on the loan-to-value (LTV) ratio.

If we’re talking about a loan amount of $750,000 on a primary residence, another .25% in fee is roughly $1,875.

This might move the dial on your 30-year fixed mortgage from 3.25% to 3.375%, or simply increase closing costs.

If that fee is .75% higher due to an LTV of 80%, we’re talking $5,625 in cost, which will more than likely increase your mortgage rate an eighth of a percent or more.

It’s not the end of the world, but it’s yet another thing working against homeowners and home buyers as mortgage rates have started off 2022 higher.

And they tend to peak during spring and early summer, which means financing will be that much more expensive.

The situation is even worse for second home buyers or owners, where pricing adjustments will increase anywhere from 1.125% to a staggering 3.875%.

Using our same loan amount of $750,000, even at a low LTV ratio, the increase in upfront costs could equate to around $10,300.

If we’re talking a high balance loan on a second home at 80% LTV, which isn’t out of the question, it’s an additional cost of about $31,000.

Again, depending on if you let the rate absorb these additional costs, you could be looking at a rate that’s .25% to .50% higher, or more.

Second Home Owners and Those with Large Loan Amounts Should Review Their Mortgages Now

If you believe these changes may affect you, it could be a good time to review your outstanding home loans.

The same goes for prospective home buyers thinking about purchasing an expensive property or a vacation home, which are en vogue due to COVID.

As illustrated above, these higher pricing adjustments have the ability to raise mortgage rates considerably. Or at the very least bump up your closing costs.

With home prices and mortgage rates also seemingly headed higher by spring, it could make sense to accelerate any refinance or home purchase plans to avoid these looming fees.

The FHFA said the new fees won’t go into effect until April 1, 2022 to “minimize market and pipeline disruption,” aka higher pricing for confused customers.

But watch out for mortgage lenders beginning to price in changes earlier on. Simply put, this is yet another reason to make any planned move sooner rather than later.

If you own an investment property, the same types of pricing changes might be on the horizon. So if you’re looking for better terms or cash out, now might be the time.

Source: thetruthaboutmortgage.com