A key concept in sports and business is, “Know your competition.” That concept also applies to home buyers in this very competitive market. So who are you competing with when offering on a home? There are many other people just like you who want to own and live in a primary residence. But increasingly, you are competing with investors, individuals and corporations buying homes which they will then rent. Here are some statistics on recent investor purchases from a second quarter 2021 Redfin study:
Nationwide, investors bought 67,943 homes in Q2 – $48.5 billion.
This is a 15.1% / $9.6 billion increase over Q1.
This is a 106.7% / $27.6 billion increase over last year – 2020 Q2.
Investors bought 15.9% of homes sold – about one in every six homes sold.
Investor purchases of single family homes and condos increased in Q2.
Investors purchased 21.2% of low-priced American homes. But due to Atlanta’s relatively low home prices, investors purchased 23.6% of Atlanta homes.
74% of Q2 investor purchases were all-cash purchases.
OK, “enemy” may be too strong a term, but this tune rocks, and when was the last time you saw a music video in the Mortgage Blog, so let’s use it!
So how do you compete with investors making all cash offers? According to another study by Redfin, noted in this prior Mortgage Blog post, all cash offers deliver the greatest competitive advantage to the home buyer. The second most powerful offer detail is a zero-day finance contingency. By using a zero-day finance contingency, the home buyer is basically waiving her right to an earnest money refund if underwriting denies the loan application. Why would someone take that risk and offer a zero-day finance contingency? Because they have already been fully approved by underwriting prior to making the offer. We call this obtaining underwriting approval on a “to be determined (TBD)” property.
In August 2020, we used this approach with one of my clients. Jim wanted to buy a home in a very competitive market, and he wanted every competitive advantage he could get. So we obtained his TBD approval before he started making offers. When Jim’s Realtor saw the approval letter, he replied, “This is as good as a cash offer!” Now I don’t know that I would totally agree with that, but I would say it’s the next best thing to a cash offer. Then Jim actually beat a cash offer and has been living in his dream home for the last year now. Many more of my clients have successfully used TBD approvals to win their own homes this year.
Not every lender can obtain underwriting approvals for a TBD address. Dunwoody Mortgage can do it. Do you want to buy your own piece of the American Dream in Atlanta before prices rise more and mortgage interest rates increase? Then call me today and let’s get to work on your TBD approval so you can defeat your competition, whom you now know a little better.
Here is a quick summary of how national policy priorities can impact conventional mortgage interest rate calculations. Conventional mortgage giants Fannie Mae and Freddie Mac charge what are called “guarantee fees” in their interest rate pricing models. These “g-fees” cover losses from borrower defaults, administrative costs and provide a return on capital. In 2019, g-fees amounted to 58 basis points on average for a 30-year fixed rate loan. Lenders typically pass these g-fees along to borrowers in the form of higher interest rates.
Congress and the mortgage giants can modify mortgage interest rate fee structures to generate additional revenue to cover national policy priorities. For example, in 2020, Fannie and Freddie implemented a 50 basis point fee specific to mortgage refinances (dubbed the “Adverse Market Fee”). The fee only applied to refinances, not purchases. This fee caused rates on refinances to be slightly higher than rates on similar home purchase mortgages. The refinance fee was eliminated earlier in 2021.
Congress sometimes mandates fees to pay for specific legislative priorities. For example, in 2011, Congress applied an extra 10 basis points to the g-fees charged by Fannie and Freddie. Congress passed this extra fee to cover a three-month payroll tax cut. The fee was set to expire in September 2021. Recently, some Senate members have proposed moving the expiration date from 2021 to 2032. They estimate the extra g-fee will generate $21 billion in revenue to help fund the estimated $579 billion designated to pay for roads, power grid modernization, and rural broadband expansion. Mortgage industry and housing advocacy groups – often in opposition on other policy proposals – are now united in opposition to this use of g-fees. The infrastructure package does not have a housing component. So this proposal will tax home mortgage holders without benefitting national housing concerns. People who pay cash for their homes will not pay this fee.
How will this impact you? If the fee is extended, there’s no change to what people have experienced since 2011 in terms of applying for a home loan or changes for doing a home loan. If the fee is allowed to expire, it won’t cause a significant change in interest rates as the fee is minimal. Ultimately there will be a minimal impact to consumers. I just find this topic interesting.
All of this said, if you (or someone you know) want to buy a home in Georgia, now is still a great time to buy as interest rates are near historic lows. These current low rates increase your buying power. And Dunwoody Mortgage offers tools to help home buyers win the contract in this competitive market. Contact me to get started.
Unison’s March 21 homeownership survey gives interesting insight regarding how the pandemic has impacted Americans’ feelings about their homes. It covers many different aspects of American home ownership in 2021. Here are some points that I find most interesting.
The pandemic forced Americans to do everything from home, so homes became schools, offices, gyms, and more. Therefore, 64% of respondents stated their home is more important now than ever before. 91% of respondents stated that owning a home makes them feel more successful, stable and secure. Before covid, 58% of homeowners felt an emotional attachment to their homes. After the pandemic changed our lifestyles, 70% of owners now feel an emotional attachment to their homes. Millennials reported the highest level of emotional attachment to their homes.
90% of respondents view their home as an asset as opposed to a burden. However, 29% of owners had to take some sort of action to keep up with their mortgage payments due to pandemic impacts. To weather the storm, homeowners accessed retirement savings, delayed remodeling projects, rented out portions of their homes, and sought forbearance relief. The study noted that Millennials reported the greatest economic impacts from covid.
45% of homeowners are planning a 2021 home improvement project. 33% of mortgage-holders say they would tap their homes’ equity to finance a home improvement. That’s up from 21% before the pandemic. The most popular planned renovations are kitchen and bathroom remodels. Only 4% believe creating a dedicated home work space will most improve their home life.
Finally, 37% of Millennials stated that the pandemic has made them consider moving. The biggest drivers of the desire to move are (1) needing more space, (2) reducing living expenses, and (3) job location flexibility.
The study has a lot more detail than I can cover here. Check it out if you want to learn more.
From a mortgage perspective, interest rates are still close to historic lows. Now is still a great time to buy a new home or do a cash out refinance to fund a home improvement project. If you know someone in Georgia considering a move or a refinance, please refer them to me. The Dunwoody Mortgage team can help our buyers win purchase contracts and will make the mortgage process as simple as possible.
As the Mortgage Blog has stated many times recently, buying a home in metro Atlanta is now a very competitive endeavor. Home buyers seek every possible advantage to win. A recent Redfin report documented the effectiveness of certain strategies. Here’s a quick summary:
All cash offers increase the buyers’ odds of winning by 290%.
Waiving the financing contingency increases the buyers odds by 66%.
Using a price escalation clause has no significant impact.
Waiving the inspection contingency has no significant impact.
I must say that the last two surprised me. But let’s focus on the effective strategies. The impact of making a cash offer is obviously huge, but one key in this market is that now cash offers must match or exceed the list price, or the offer may not win.
What if you have the cash but would prefer to finance some of the purchase? You have two options. I’m currently working with a client who made an all cash offer. After winning the contract, he applied for a relatively small mortgage. He could pay all cash, but he’s using the mortgage to keep some money invested in the stock market. With this strategy, we can close on time and it doesn’t concern the seller. But the buyer has no financing contingency or appraisal contingency protections. If the appraisal is low or underwriting denies the loan, the buyer must still close using his cash or will most likely lose his earnest money.
Another strategy for a cash rich buyer is to close the purchase with cash and then immediately do a home loan after closing. We call this a “delayed financing loan.” This gives the buyer the advantages of a cash offer and the ability to finance the home later and recoup some of the assets used for the purchase. Note that all of the assets used for the purchase must be from the buyer’s own accounts. The buyer cannot borrow money from a relative or anywhere else. If any of the funds for the cash purchase (even only $1,000) are from an account not owned by the buyer, then this quick finance option is not available. If not all the funds came from the buyer, then the buyer must wait 6 months after closing the purchase to do a refinance loan. And note that interest rate pricing on the delayed financing loan differs from the first approach described above.
Waiving the financing contingency is an effective tool for buyers who don’t have the cash to purchase without a mortgage. But it can be a risky strategy if the buyer has not addressed financing first. At Dunwoody Mortgage, we can underwrite loans with a “to be determined” property. Once approved, the buyer can confidently waive the financing contingency and offer a relatively short closing date. This is a great way to strengthen your offer versus your competition. Not every mortgage lender can offer TBD underwriting.
Are you buying a home in Georgia and want to win the bidding war? Call me about one of these options today. I’ll work with you to help you win the contract and close on your new home as soon as possible. (And for good measure, here are a few more creative Realtor ideas for winning the contract. I can help you with #4!)
As we have mentioned in multiple recent Mortgage Blog posts, it is a VERY competitive market for Atlanta home buyers. I’ve heard a 15-year veteran of the mortgage business say, “I’ve never seen it like this.” I have a Realtor friend who listed a home on a Friday in late January. By the following Monday she had received 106 offers.
A recent Wall Street Journalarticle covered some painful mistakes that home buyers have made in their zeal to win the contract. It’s a fascinating review of decisions some buyers wound up regretting in this uber competitive market. The article noted that “pandemic buying fever” has sometimes led to buyer’s remorse. A key point for home buyers to consider is that a house, “unlike expensive jewelry or clothing, can’t be returned if the buyer is unhappy with it, so a cardinal rule of home buying is that you shouldn’t rush into a purchase.” Critical home buyer mistakes included:
Waiving home inspections that could have identified unacceptable or expensive problems like woodpeckers and wasps.
Accepting home “issues” that one would not accept in a more “normal” market – the article’s example was toxic black mold and asbestos.
I have recently seen home buyers risk their earnest money with zero-day financing or appraisal contingencies. In my opinion, a zero-day financing contingency can make sense when underwriting has already approved the buyer (see the blog post mentioned below), and a zero-day appraisal contingency can make sense when the borrower is making a large down payment. But these approaches do have risk and the home buyer should thoroughly understand the situation before taking these (calculated) risks.
My recommendation is this…plan ahead and think carefully about what you are willing to risk in this market. Then make offers that are as aggressive as possible, given your risk tolerance. Perhaps you are willing to offer a zero-day due diligence period with a $5,000 earnest money payment. In that case, you may still want to pay for a home inspection to protect your long-term interests. If the inspection identifies an expensive structural issue, it may make sense to terminate the contract and forfeit the earnest money rather than close on a house that will require tens of thousands in repairs. Perhaps you have available cash, and you are willing to risk having to make a larger down payment than you originally planned, in which case you may consider a zero-day appraisal contingency.
One of our recent posts described a smart way for buyers to claim a competitive advantage in this market. I’ve used this approach with several buyers in recent months and it has worked well. In one case, one of my clients beat a cash offer!! If you want to compete more effectively in this home market without taking more risk than you can accept, call me and we can discuss a “TBD property underwrite.” I would love to help you succeed and win, even in this challenging market.
Covid continues to cause interesting (and some perhaps fun) trends in housing.
A January 26 Wall Street Journalarticle covers a new covid-induced housing trend…Millennials seeking to escape covid risk in urban environments are feeling isolated and lonely, so they are moving to remote co-living spaces. In these residences, the tenants rent furnished rooms in big shared homes. Former vacation homes, country manors, farms, or converted hotels are now serving as these communal living spaces.
The trend began in Europe. One example is in a village outside of Berlin and is described as a “5-acre property, based in a converted manor, includes shared offices, a sauna, a swimming pond, a yoga studio and 20 rooms for guests who get three meals a day and pay less rent than for a Berlin apartment.” The article states that every room is leased.
This trend’s popularity is also growing in the US, as more large companies announce delayed returns to office work. A company called Outsite operates multiple US facilities in places like LA, Lake Tahoe, Santa Cruz, and Oahu. Outsite’s international locations include France, Portugal, and Barbados. The site in the Canary Islands really got my attention. Right now, weekly rentals there are listed at $300! I’m ready to go. Here’s a photo of the Canary Island location.
As vaccines continue to roll out and the world returns to a more “normal” situation, these trends may fade away. People will likely transition back to more traditional single family living situations.
If you work in Georgia and decide to follow this trend, you might eventually return. When you do, please contact me if you want to buy a house. Mortgage interest rates will likely stay near historically low levels for a while. (They may move up from the current rock-bottom levels, but I suspect they will still be low, from a historical perspective.) The Dunwoody Mortgage team makes home buying efficient and we help you every step of the way. We even have tools to help you win a contract in this most competitive buying environment. Let me know if you want to learn more. For now, just join me in dreaming of living and working in the Canary Islands for a month!
A recent mortgage industry headline surprised me, “Many Homeowners Still Missing Out.” The subheading read, “80% of owners have not refinanced.” Given that interest rates have reached historic lows, with less than 3.0% rates often available for 30 year mortgages, I’m really surprised that so many people have not refinanced.
The article provides the following statistics:
Almost 30% of mortgage holders do not know their current interest rate!!
Almost 20% of borrowers have refinanced in 2020.
Over 25% have considered refinancing but have not done it.
And over 50% have not even considered a refinance.
I am now doing refinances for customers whom I refinanced in 2019. Mortgage interest rates have continued dropping to the point that a second refinance now makes financial sense for some of my clients.
If you have a mortgage on a Georgia home, here are a couple of clues that you might want to talk with me about refinancing now:
Your interest rate is above 3.5%. The rate typically shows on your mortgage statement. Take a quick minute to look at it.
You obtained a FHA loan more than 2 years ago. With recent home appreciation, it’s worth exploring a conventional refinance in hopes that you can eliminate the FHA mortgage insurance.
The ultimate consideration is how much will the loan cost as compared to how much you can save monthly. Yesterday, I talked with a former purchase client. In 2016, she bought a house with a 3.5% down FHA loan at a 3.75% interest rate. That was a great deal for her….back then. Since she bought the house, it has appreciated over $100,000. With her increased equity, doing a refinance now would lower her interest rate almost a full percentage point, and she would eliminate the FHA mortgage insurance that costs her $155 every month. Her total monthly savings could be around $330. I estimate a refinance will pay for itself in just over a year.
What about you? Is your interest rate over 3.5%? Do you have a 2 year (or older) FHA loan? Do you want to give yourself a raise by lowering your monthly mortgage payment? If yes, give me a call. I can easily help you analyze your current situation to see if a refinance makes sense for you. Don’t wait too long. Who knows when interest rates will start rising.
After a crazy 2020 with the pandemic plus related economic impacts, a Presidential election, followed by a year-end pandemic surge, it’s time to ponder what will 2021 bring us. To recap 2020, the housing market started strong, until Covid cases appeared in the US and control measures were implemented. At that point, mortgage application volume showed year over year declines for four consecutive weeks. The following five weeks showed year over year negative growth, but the numbers stabilized. After this two-month period, purchase mortgage applications went positive. And now we have experienced almost 30 straight weeks of purchase mortgage application growth on a year over year basis. The average year over year improvement has been over 20%.
Due to the laws of supply and demand, home prices have risen in this time period. But mortgage interest rates have consistently decreased, enabling more home buyers to qualify to purchase higher priced homes, thus continuing to fuel the higher demand. Ultimately 2020 mortgage origination volume has been at a level not seen since 2003.
The Mortgage Bankers Association (MBA) now predicts that 2021 purchase originations will hit $1.59 trillion. That would be a new record – the previous record was $1.51 trillion in 2005.
The chief economist for the National Association of Realtors (NAR) recently stated, “This year may be one of the best winters for sales activity.” NAR predicts that a continuing housing shortage will keep home prices elevated. The NAR predicts a continued strong economic recovery, assuming an effective rollout of the new vaccine.
Are you still renting? With historically low interest rates, now is a great time to buy. You can buy more house now for the same mortgage payment you would have made on a lower priced home a year ago. The biggest challenge is that this market is very competitive. To win the contract, you need every advantage you can get.
Choosing the right mortgage professional can help you win the contract. (Learn more here.) Do you want to take advantage of the current low rates and perhaps buy a nice yard for some fun social distancing? Or do you want to upgrade your home office? Then contact me. I will do everything a lender can do to help you win the contract so you can move into your new home soon.
A recent real estate article noted that since the pandemic began affecting the market, “43% of all homebuyers have faced competition in buying their homes.” It’s a sellers’ market, and that makes it challenging for home buyers.
Given the historically low interest rates, many people are looking to buy homes now. But the current supply of homes for sale is relatively low. In mid-July, the National Association of Realtors’ official listing site showed housing inventory down 32% compared to July 2019. Realtors report that potential home buyers are often getting very frustrated. Bidding wars frequently result over homes listed for sale.
Working with a good buyers agent can help a buyer compete. Here are some other suggestions to improve a buyer’s odds of winning a bidding war:
No strings attached – the “cleaner” the offer the better. A buyer should remove every contingency she can live without. It is best to avoid making an offer contingent on selling your current home. Making a contingent offer lessens its appeal.
Leverage your strength – If you do have to sell your current home before buying, negotiate a short-term rent back of your home after closing. This could give you time to close on your purchase without moving twice. Since it’s a seller’s market, use that to your advantage when negotiating your sale. (Other options, if you must sell your home, include obtaining a short term rental or living with relatives.)
Offer to take the house as is – be sure to get a home inspection, and feel free to cancel the deal if the inspection uncovers a major problem, but otherwise, resolve to deal with minor issues yourself, after closing on the purchase. Requiring the seller to resolve relatively minor issues can make your offer less competitive.
Add a personal touch – I’ve heard of potential buyers hand writing a letter to the seller and describing how the home is perfect for the buyer’s family. Even include a photo of your family. And don’t discuss potential changes you want to make to the house if the seller can hear. Your planned changes may turn them against you.
Speed is of the essence – some buyers want to close quickly. Offer to close as quickly as you can.
Choose a local lender who will help you – I always ask buyers’ agents if they want me to call the listing agent and explain how strong my buyer is. That could help sway the seller. If they don’t want me to call, I ask them to have the listing agent call me. I go to bat for my clients whenever I can. Also, I can obtain underwriting approval on my clients’ applications using a TBD property. The buyer is approved by underwriting before she makes an offer on a home. I then give the buyer a letter stating they are approved by underwriting. Note this – “approved,” not “pre-approved” or “prequalified,” but approved. I did this for clients in July. Their offer beat out an all cash offer, because they could proceed without a financing contingency. Obtaining UW approval before they made their offer very strong, allowing us to remove the financing contingency and close quickly.
Do you want to buy a home in Georgia and want to make the strongest offer possible? Give me a call and let’s start the process. I can get you approved before you make offers, putting you in the strongest possible position to win in this competitive market. And I will go to bat for you to help you win.
Historically low mortgage interest rates have created a refinance “boom” in 2020. Millions of homeowners have realized significant monthly savings by lowering their interest rates. Current rates are still very low by historic standards, but refinancing is now getting more expensive.
Several weeks ago, mortgage giants Fannie Mae and Freddie Mac announced a new 0.5% “Adverse Market Refinance Fee,” applied to all mortgage refinances (not purchase mortgages). They announced this fee as a risk management step to address “loss forecasting precipitated by continued economic and market uncertainty.” In layman’s terms, Fannie and Freddie are collecting this new revenue to offset losses from expected foreclosures due to the pandemic and related economic stress.
Fannie and Freddie announced that the new fee would be effective for all loans they purchase starting on September 1, 2020. There was an immediate outcry from the mortgage industry. One mortgage association executive called this new fee an “ill-timed, misguided directive,” and urged its repeal. The same executive noted that the fee will raise interest rates on “families trying to make ends meet in these challenging times.” Fannie and Freddie relented, a bit, and delayed the implementation of the new fee until December 1.
What does that mean now if you want to refinance? It may be too late to avoid the fee. Many lenders are now pricing this fee into their published interest rates. Why so early? It can take a lender 30 – 60 days to package closed loans and sell them to Fannie and Freddie. Since lenders will pay this fee beginning December 1, loans locked for 30 to 45 days in late September may not be sold to the mortgage giants until after the December 1 fee date. The lenders don’t want to pay the fee themselves, so many are now passing the fee along to their customers.
What does this mean for new mortgage customers? Well first, if you want to buy a home, the fee does not apply and you can still take advantage of the lowest interest rates in history. Call me to get prequalified and then you can start your home search. Secondly, if you bought a home in 2017, 2018, and early 2019, it might still make good financial sense to refinance now, even if you have to pay the fee. Call me and we can evaluate your current mortgage versus a new mortgage. I can calculate your monthly savings, your loan costs, and determine a “return on investment” period for you. I often hear investment advisors recommend, “Don’t try to time the market.” I think that applies to a refinance. If the numbers make good financial sense now, don’t wait for rates to fall further, because they could go up instead. Let’s talk and evaluate what’s the best move for you now.
Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services and a writer for “the Mortgage Blog.” If you would like to be a guest writer for "the Mortgage Blog" please contact Clay for details.
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