Interest Rate Changes to Be Aware of in 2018

Though interest rates have risen, the introduction of new lending programs and the loosening of lending guidelines mean now is a great time to buy or sell a home. 

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One of the most common questions we’re getting right now is how interest rates are affecting buyers and sellers in our market, so I’ve once again brought in our preferred lender Brandon Moss to shed some light on this topic. 

Interest rates have gone up by roughly 0.5% since the start of 2018, and they’re still sitting in the mid-4% range for 30-year fixed mortgages. Stocks have also continued to hit all-time highs, and the 10-year yield nearly reached 3%, which is the highest point it’s been in four years. 

According to Brandon, this means it’s a great time for buyers and sellers to get off the fence while affordability is at an all-time high. If you’re a seller, you can get top dollar now while buyers can still qualify for higher-priced homes and afford low interest rate payments.  

There have been some notable changes to conforming loans that are advantageous to buyers. Their guidelines have become more flexible, and their limit was raised from $634,000 to $679,000. This helps buyers qualify for higher loan amounts with less of a down payment and, due to rising prices in LA County, increases their purchasing power. 

It’s a great time for buyers and sellers to get off the fence.

If you’re a buyer, Fairway Mortgage is offering some new programs this year that you might be interested in, including programs designed for self-employed buyers who can’t show enough income to qualify, reduced documentation programs, and reduced down payment programs.

Though interest rates have gone up, the introduction of these new programs and the loosening of lending guidelines has opened up more doors for buyers and made now a great time to get a loan and buy a house.

“You’d be surprised what you might qualify for nowadays and how easy it might be to get a loan,” Brandon says.

If you have any lending questions for Brandon, you can call him at (818) 256-4330. If you have real estate questions for me or you’re thinking of buying or selling a home, feel free to give me a call or send me an email. I’d be happy to help you.

10 Terms First-Time Homebuyers Need to Know

Today, I want to share a list of the top 10 terms that all first-time homebuyers should understand.

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If you are buying a home for the first time, there are 10 important terms that you need to know: 1. Fixed-rate mortgage: This is a mortgage with a fixed-rate term. If you have an interest rate of 4.5%, you typically have a five-, 10-, 15-, or 30-year time period on your mortgage, and your interest rate won’t change unless you refinance. 2. Adjustable rate mortgage: This is the opposite of a fixed-rate mortgage. With the adjustable-rate mortgage, you’ll have a shorter term for your loan, maybe five to 10 years. Once that term concludes, your interest rate will adjust according to other interest rates charged by the bank. This can get confusing, so I always recommend that you talk to a lender if you want more clarification. 3. Pre-approval: This is different from a pre-qualification. When you’re pre-approved, that means you’ve talked to a lender and given them all of your paperwork, including tax documents, bank statements, your W-2, and other documents the lender may require so they can verify whether or not you are qualified to buy. If you make $10 an hour, you’re probably not qualified to buy a $1 million home. If you earn $1,000 an hour, then you probably are. 4. Conventional loans: These loans typically carry a 15- or 30-year time period. You generally need a 650 FICO score to qualify for a conventional loan and a 20% down payment. The average down payment for a first-time buyer is only about 5%, so if you don’t have 20% down or a high credit score, there are a lot of other loan programs out there. 5. FHA loan: This is a great loan for anyone who has gone through some credit dings. FHA stands for Federal Housing Administration, and with this loan, you can put down a minimum of 3.5%. You will have to carry mortgage insurance, but you can take that off later down the road.

Closing costs are usually 2% to 5% of the purchase price.

6. Appraisal: An appraisal is when a third-party company, working on behalf of the bank, analyzes your property and compares it to comparable properties within a certain radius. The home’s condition, style of the property, and lot size are just a few of the factors taken into consideration. If you offer $500,000 for the home and the appraisal comes in at $475,000, either the purchase price has to come down or you have to bring another $25,000 in cash to make the deal work. 7. Mortgage insurance: This type of insurance exists to protect the bank. If you don’t want mortgage insurance, you have to put at least 20% down. If you don’t put 20% down, you will get anywhere from 0.03% to 1.15% mortgage insurance tacked onto your rate. There are always ways around it and plenty of programs out there that don’t require mortgage insurance, so again, make sure you talk to your lender. 8. Closing costs: What you pay in closing costs depends on you and what third-party vendors you may have brought in for expenses such as escrow, title, lender fees, and inspections. Whatever it may be, you can expect closing costs to be between 2% to 5% of the purchase price. 9. Buying down the rate: If your credit score isn’t great or it’s not where you want it to be and you have a lot of cash on hand, then you have the opportunity to take a high interest rate and reduce it. You are literally paying to buy a better interest rate. 10. Escrow: This means that you are at the table and signing away. An escrow account is a locked account that holds the buyer’s deposit so the seller can’t pull it out and the buyer can’t spend it. It’s kept safe through non-conflicting instructions regarding the buyer and seller releasing that cash, and that’s usually when the deal ends. I hope you found this top 10 list helpful. If you have any questions about buying a house or real estate in general, just give me a call or send me an email. I would be happy to help you!

Do Fewer People Want to Buy Homes Since the Tax Reform Bill?

Will The Tax Cuts and Jobs Act keep more San Fernando Valley buyers on the fence? C.P.A. Issam Aljaber is here to discuss this and other concerns about tax reform.

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Today I’m joined by C.P.A. Issam Aljaber to discuss some of the concerns we’re hearing from home sellers about the new tax reform act. 

Do buyers really want to buy a home right now after the tax reform act? 

Issam believes that buyers will still want to buy a home regardless. Although there may not be as much of a tax incentive to buy a home, homeownership is still exciting. We haven’t seen any less buyer demand in our market. The tax deduction was more of an incentive rather than a dealbreaker for people planning on buying a house. 

That said, there are a few points in the tax reform act that buyers and sellers in California should know about. 

One of them is the mortgage interest deduction. Under the previous tax law, up to $1 million of mortgage interest was deductible for the personal income tax. The new limit is $750,000. 

If you are buying in the $1 million range and putting 20% down, Issam believes you are still safe in that range and able to deduct mortgage interest. Once you are over that price point, a lot of the homes sold in that price point are often cash transactions anyway. 

Although there is less of a tax incentive to buy, people still want to become homeowners.

Price points under $900,000 are not affected that much by this change. People used to feel more of a tax savings when they bought a $200,000 or $400,000, so there is not much of an incentive there anymore. Like we mentioned earlier, though, tax incentives are not necessarily make-or-break for those planning to buy a home. 

Finally, sellers have also been asking if the capital gains exemption was affected by the tax reform. 

Although there were talks in earlier versions of the bill about changing the capital gains tax exemption, no changes were made in the final bill. If you are thinking of selling your house, single taxpayers can still get up to $250,000 in capital gains tax-free, and married couples can still get up to $500,000 in capital gains tax-free.  

If you have any other questions about the tax reform act, you can contact Issam Aljaber at (818) 383-8029. As always, if you have any real estate questions, just give me a call or send me an email. We would be happy to help you!