Scott Weber and his real estate agent had a focused and disciplined strategy to find his family a good deal in the town of La Verne.
All practical bridges. Scour the market for homes that match his family’s wants and needs. Only bid on properties that have been for sale for at least 30 days. Make low offers.
Just four short offers later, Weber was under contract for a very nice house for $1,050,000.
My eyes widened when the valuation came back to $1,200,000. I thought I misread the report. I can’t remember the last time a customer underpaid by 12.5%.
Just like that, Weber starts with a $150,000 lead.
“Sellers don’t want to admit it’s a buyer’s market,” Weber said. “Some sellers were offended (when) we didn’t outbid.”
It’s been an insatiable seller’s market for three good years. Not anymore.
On Wednesday, July 20, the Mortgage Bankers Association announced its lowest level of mortgage applications in 22 years.
“Buying activity has declined for conventional and government loans as a weaker economic outlook, high inflation and ongoing affordability issues impact buyer demand,” said Joel Kan, vice president. -associate president of economic and industrial forecasts of MBA.
If you’re looking for your dream home, second home, or investment property, consider the seller’s broader menu of concessions — not just sale price.
See big. Ask a lot. Sellers can simply say yes, no, or monkey in the middle.
For example, consider a permanent rate buyout. Suppose you can get a 30-year fixed rate at 5.5% with no points. The principal and interest payment would be $3,407 on a $600,000 loan. At 4.875%, the payment would be $3,175, or a more affordable $232 per month.
This concession would cost the seller about 2% of the loan amount, or $12,000. But it could potentially save the buyer $83,520 over the life of the loan.
Home builders are especially open to a cornucopia of concessions if it doesn’t mean a discount on the sale price. They want their gated sales to hold steady to ensure discounts don’t torpedo prices for an entire phase of freshly built homes.
Always shop around and compare builder credits with outside providers like flooring and mortgage companies. To my knowledge, suppliers of ancillary goods and services to a builder tend to have inflated prices. Can you say profit center?
Freddie Mac allows “interested party contributions” of up to 3% of the sale price for homebuyers making down payments of less than 10%. These “KPIs” include home sellers, builders and real estate dealerships. Freddie also allows up to 6% IPC concessions for loans with a 10-25% down payment, and up to 9% for buyers putting down more than 25% down.
Freddie allows a maximum of 2% CPI for investment properties, regardless of down payment size.
Other potential concessions come after your home is inspected.
For example, the buyer and seller can agree on a seller’s credit for roof and plumbing repairs, which can be done after the escrow closes. Let’s say the cost of the repairs is $15,000. You can convert this to closing cost credits or reduce the sale price by this amount.
Keep in mind that the lender will reduce the appraised value of the repair amount if you call it a repair credit. This could potentially affect your down payment or the price of your loan.
How about asking the seller to defer a second “stacked” mortgage to qualify for a decent-sized home instead of living in a shoebox? This could allow the buyer to pay less and avoid mortgage insurance.
“The biggest hurdle for homebuyers is the down payment,” said Brad Seibel, head of mortgages at Sage.
Say, for example, a buyer with an average FICO score of 760 and a strong work history agrees to pay 5%, or $25,000, on a $500,000 purchase. Instead, the seller could agree to defer a second mortgage of 15%, or $75,000, for a monthly interest payment of just 6%, with a lump sum payment due in five years. The seller would also have to agree to pay 1.125 points to offset the additional costs of maintaining the first loan at 5%.
Assuming the buyer gets a rate of 5.375% over a 30-year term for the first trust deed, he would pay $121 less per month with the so-called second piggyback mortgage for the first five years. It could also mean the difference between qualifying or not.
Seller financing could provide an added bonus to some home sellers: a capital gains tax deferral.
“The seller is delaying any potential capital gains tax on the $75,000 until the buyer pays off the principal balance,” said Jeff Hipshman, CPA partner at Eide Bailly LLP. “All interest payments from the buyer to the seller are taxable to the seller as ordinary income.”
If you’re looking for concessions in addition to getting your best price, work with your mortgage originator and real estate professional, especially if you’re focusing on a permanent mortgage rate buyout.
Freddie Mac rates the news: The 30-year fixed rate averaged 5.54%, 3 basis points higher than last week. The 15-year fixed rate averaged 4.75%, 8 basis points higher than last week.
The Mortgage Bankers Association reported a 6.3% drop in mortgage applications from the previous week.
At the end of the line : Assuming a borrower gets the average 30-year fixed rate on a conforming loan of $647,200, last year’s payment was a jaw-dropping $1,039 less than this week’s payment of $3,691.
What I see: Locally, well-qualified borrowers can obtain the following fixed rate mortgages without points: A 30-year FHA at 5%, a 15-year conventional at 4.875%, a 30-year conventional at 5.5%, a -balance ($647,201 to $970,800) at 5.25%, a 30-year conventional high balance at 5.75%, and a 30-year buy jumbo at 5.375%.
Eye-Catching Loan of the Week: A 30-year jumbo purchase mortgage with an interest-only payment for the first five years at 4.875%, no points.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.
