Rising Mortgage Rates While You’re Waiting For Your Home to Be Built

In the current market of high demand and low inventory, it’s common practice to be outbid numerous times when trying to purchase a home.  Therefore, lots of homebuyers are opting to forgo the bidding wars and simply build a house.

This can be an attractive option on paper but not necessarily simple.  Labor shortages and pandemic supply chain delays have kept builders waiting on everything from roofing supplies to doors and windows.  What was originally a 9-month project could be well into month 18 with no firm completion date in sight, depending on the builder.

Meanwhile, interest rates always have a chance of going up. Traditional lenders offer rate locks, but they don’t last long (30-90 days).  If your rate expires and your home still isn’t finished, it will end up costing a lot more than you’d planned, which leads to homebuyers getting hit with price shock at the settlement table. It is important with new construction that you investigate ALL lending options. I hate to say this, but sometimes it is better to go with the lender provided by the builder. Oftentimes, they offer nice incentives and and can offer extended rate locks to get you through any variability in interest rates.

In worst case scenarios, buyers have signed contracts to buy homes, but can no longer qualify for a mortgage to buy the same home they could afford just 6-9 months earlier.  This leads to the inevitable canceling from the homebuyers, which leaves their deposits hanging in the wind. 

As always, my team and I can help you navigate these situations. One of the worst myths in real estate is that people who build homes don’t need buyer’s agents. Here is yet another reason why this is false.

How “Aging in Place” is Reshaping the Real Estate Market

There are so many more options now that make it easier for older adults to stay in their homes as they get older.  There is in-home medical care, meal delivery services, in-home helpers for cooking and cleaning, and even ways to retrofit your home to make it more accommodating.  Fairly minimal home accommodation projects could be adding a ramp at the front door, a chair lift for the staircase, grab bars in the bath/shower, etc.

Staying in the home really allows older adults to keep their sense of dignity and independence.  However, this new norm is having a national impact on the available housing options for younger generations. 

During and after The Great Recession, it was not uncommon for more and more Boomers to continue in their jobs past the age of 65 due to the downward effects on their retirement accounts.  This left less and less job openings available for younger adults (Millennials) to jump in and start their careers.  This also had a direct impact on the average age of first-time home buyers.  Because the millennials were starting their careers at a later age, it delayed their ability to save money for a home.

Several decades ago, it was common for children to leave the home and their parents to downsize or move into nursing home or retirement communities, thus freeing up their home for someone else to purchase.  Now, fewer adults between the ages of 67 and 85 are leaving their homes, and that is causing a major shortage of available houses for sale. After all, the housing market is like a cycle and any time that cycle gets jammed up (such as older Americans not selling their homes and lots of younger ones wanting to buy), there is imbalance and throws the market for a loop. Granted there are a lot of factors contributing to housing shortages across the country but I have found this is one that isn’t talked about nearly enough. Most don’t realize that Millennials are now the largest generation and very much are into buying homes. This “aging in place” dynamic is not going to help things. Maybe in another article I’ll talk about the effect of driverless cars on the housing market. Someday maybe… But for now, this is a relatively new development the market will have to sort out.

One of the Things that Really Has Annoyed Me About this Market

There’s an old sales adage that states, “The confused mind says ‘no’”. Nothing could be truer when it comes to VA home loans. This has been truly one of the most disappointing things about this two-year run we have had in the market. VA loans seem to be thrown aside as substandard or “risky”.  As background, VA loans are guaranteed by the government and enable veterans to buy homes with no or low down payments, so why does it seem that some sellers won’t even consider offers with VA home loans?

First off, there is a misconception that because this is a zero-down mortgage, the veteran might be less likely to make it to close.  But on the contrary, this is simply the way these loans are structured to make buying a home easier for our vets. To boot, there is a huge apparatus in the background at Veteran Affairs which offer support to the civilian population trying to get these homes to settlement.  So why does it seem that some sellers won’t even consider offers with VA home loans?

A second misconception is the home must be in pristine condition.  Yes, VA appraisers do impose minimum property requirements (MPRs) that require the home to meet guidelines for safety and livability.  However, contrary to popular beliefs, the requirements are usually very fixable. Most common are handrails, GFCI outlets near water sources, and smoke/CO2 detectors. 

It’s also not just sellers that seem to discriminate against VA loans, but also some realtors.  The reason for this can be boiled down to the fact that some realtors just simply do not understand VA loans. They often wrongly assume that deals with VA loan buyers are riskier, cost more, and are more challenging to close than other types of loans. This lack of understanding translates to the sellers often passing on these offers. (again, confused mind says no) My team and I do work with vets and I always give their offers a strong second look if they’re not the best. My partner and I just accepted one on one of our listings and it felt REALLY good. It’s the least we can do for these brave men and women. 

For any veterans out there, take heart as my team is “VA Certified” by our lenders to handle your transaction which means we all have taken courses to better understand the ins and outs. We also go the extra mile to ensure the listing agents (and their sellers) fully understand the way these loans work. It is inevitable that in the near future veterans will see a resurgence in their acceptance rate as sellers lose leverage and stop receiving multiple offers for their property. I personally look forward to the day when placing a vet becomes MUCH easier. 

How To Pay For Your Home Improvement Projects

From something minor like fresh paint, to something major like adding additional rooms, home improvement projects can make your home a better place to live as well as increase its value.  The cost of these projects can be daunting and they can add up fast.  Let’s take a look at several options for financing home improvement projects.

Cash/Savings
Depending on the cost of your project and how much you have available in savings, you might want to consider paying for it with cash.  The good: no payments to make, no interest, and many contractors offer discounts for those who pay cash.  The not-so-good: you may end up draining your emergency fund to cover your project, or you may not have enough saved to even cover your project entirely since there are often what I call “unforeseeables”.

Personal Loans
A personal loan is an unsecured installment loan where you receive a lump sum and immediately begin paying it back with interest in regular monthly payments.  The good: you don’t need equity in your home to get the loan, your home isn’t used as collateral so it isn’t at risk if you don’t repay the loan, and you can use the loan to pay for anything, not just home improvements.  The not-so good: personal loans usually have higher interest rates than home equity loans, repayment terms are fairly short which can make it hard to pay off a larger loan, and interest paid on a personal loan is not tax-deductible. These are sometimes called “hard money loans”.

Home Equity Line of Credit
Depending on how strong your credit is, you may qualify for a HELOC, which is essentially a form of revolving credit that is secured by the equity in your home.  You can usually borrow 60-85% of your home’s assessed value, minus the remaining balance of the mortgage.  This type of loan allows you to draw on your credit for an extended period of time, usually up to 10 or 20 years.  The good: instead of getting a lump sum that you have to start repaying immediately, you can borrow only what you need.  Interest paid on a HELOC may be tax deductible, and interest rates are generally lower here than on personal loans or credit cards.  The not-so-good: most HELOC interest rates are variable, which means your payments could increase.  You could potentially end up owing more than your home is worth if the value of your home decreases, and if you can’t repay the loan, you could lose your home.

Home Equity Loan
This is a second mortgage that uses your home’s equity as collateral.  You can usually borrow 75-85% of your equity, effectively repurposing your equity to put that money back into your home.  The good: interest rates are usually lower than HELOC, credit cards, and personal loans.  Interest rates are fixed, making it easier to budget for the payments.  Interest paid may be tax deductible, and long repayment periods can make it easier to pay back larger loan amounts.  The not-so-good: since you are reducing your home’s equity, it will take longer to pay your mortgage off, and if you can’t repay the loan, you could lose your home.

Credit Card
This should probably be your last option unless the project is very small.  The good: credit cards are readily accessible to most, and depending on the type of credit card, you may earn rewards for credit card purchases.  The not-so-good: you may not have a high enough credit limit to completely finance your project.  A large charge could potentially hurt your credit score by increasing your credit utilization ratio, and credit card interest rates tend to be quite high. I do not really recommend this route in any situation, but if you MUST have it

Before taking on any debt to finance home improvement projects, make sure to consider all your options and find the one that is best for you.  If you decide to go the cash route, keep in mind that putting all your money into redoing your home can leave you house-proud but cash-poor, which could have long term consequences on your credit and personal finances.  If you decide to apply for a loan, check your credit report and see where you stand to better understand the type of credit you’re likely to qualify for.

Can I buy real estate using cryptocurrency?

Cryptocurrency is essentially a form of digital money that is not regulated or reliant on any central authority such as a government or a bank to uphold or maintain it.

Surprisingly (and something I didn’t realize), more than one-third of small businesses reportedly accept crypto-payments, which leads some to speculate whether crypto mortgage payments are going to become more popular in the coming years.  While it is not fully normalized, there are already ways that you can legally buy a home with bitcoin and other crypto assets – whether it is through a financial institution or simply as a private transaction between two parties.

Let’s look at the top three ways that you can use cryptocurrency to help you purchase real estate.

Cashing out your crypto
This is going to be the most straightforward option.  If you need cash for financing, you can cash out all or some of your crypto holdings to put towards your initial down payment.

Use your crypto as collateral
Top crypto lenders like BlockFi or Unchained Capital do offer crypto-backed loans with annual percentage rates from 1-6% (at the time of this writing).  These loans can be used for major purchases such as cars and houses.

These companies claim to help everyone from the unbanked to high-net-worth individuals expand their lending options by leveraging their crypto assets.

The whole concept of a crypto-backed loan is intriguing because borrowers don’t have to liquidate their crypto holdings in order to secure financing. This prevents the need to cash out your crypto, which then avoids creating a taxable event in order to buy a house.

The tricky things here are that: (A) these loans are not currently available in all states yet, and (B) cryptocurrencies are highly volatile, so determining the loan-to-value ratio is going to vary wildly by lender. Given the recent ups and down, lenders might temporarily “run for the hills” on these.

Direct crypto transfer from buyer to seller
If you think about it, there is nothing stopping 2 people from creating a private agreement to sell a home in exchange for crypto.  Going this route might seem simple enough, but it is imperative to get your agreement in writing, and even talking to a lawyer who is experienced in both real estate and crypto law.

Also, this specific method probably isn’t going to fly if you plan to work with a real estate agent.  The agent is likely not prepared to receive their commission in the form of crypto.  Not to mention that the traditional escrow process will need to go through an accredited bank.

What is a “Rent Back”?

For the past couple of years, these handy dandy little arrangements have been used more and more. In essence, a rent-back agreement is a short-term rental agreement between a home seller and buyer that allows the seller to remain in the home for a period of time after the closing in exchange for rental payments.  Basically, the seller temporarily becomes the tenant and the buyer becomes the landlord. When we say “short-term”, that can mean a day or up to several months depending on the circumstances. Most often this kind of arrangement is executed in order to allow the sellers more time to find new housing or align with the settlement of another transaction. 

A rent-back agreement can have advantages and setbacks for both the buyer and the seller.  Before deciding if it’s right for you, you should discuss it over with your real estate agent.  Let’s look at some of the pros and cons for both parties. 

Benefits for the Seller

If the seller cannot purchase without selling, this allows them to free up this cash to they can be more competitive when they go to place an offer on their next house. This is by far the biggest benefit to this arrangement. 

More time to make a move: a rentback agreement can provide you the ability to find your new home while you retain the comfort of knowing your current home is sold

Avoid moving multiple times: if your new home won’t be available for another 2 months, this can help you avoid moving into temporary housing just to pick up and move again when your next home.

Flexibility for life events: You can’t always control exactly when your house will sell, so an arrangement like this could, for example, allow you to stay in your home long enough for children in school to finish the year before moving.

Benefits for Buyers

Agreeing to a rentback could make your offer more enticing: If the seller happens to be in need of this and the buyer is willing to agree, offering a rentback may make the offer stand out more to the seller. After all, “where are we going to move to?” is a burning question for many sellers right now. 

Extra income:  The income you make from collecting the rent payments could greatly help in covering your first several mortgage payments. This concept is not new to anyone out there who is a landlord. Nothing beats having others pay down their debts even if it is only for a couple of months. 

Saving money elsewhere: If the seller is in strong need of a rentback agreement, you may be able to leverage that into other areas such as lower closing costs, appraisal fees, inspection fees, etc.

Risks for Sellers

Increased monthly payments: Renting the home could end up costing more than you were paying for your mortgage.

No Permanent changes allowed: while you are renting back, you will not be able to make any changes to the property.

Potential loss of security deposit:  If damage happens to occur during the rentback period, you run the risk of losing your security deposit. This is especially true when sellers are moving out of the property. Be sure the agents write up a strong agreement between parties. 

Risks for Buyers

Delayed move-in:  This is kind of obvious, but of course, the buyer will not be able to move into their new home until the rentback period has ended.

Acting landlord:  While the seller is renting back the property, you are now their acting landlord.  This can come with several added responsibilities, such as drawing up the lease, collecting the rent, coordinating repairs, and even potentially evicting the seller if necessary.

If you are a buyer looking to move into your home right away, or if you are a seller looking to minimize expenses, you may want to think twice before entering into this kind of arrangement. Keep in mind also that some lenders won’t look fondly upon this type of setup so it is important that your agent knows how to navigate this process. 

I have successfully entered several rent-backs and am happy to answer any questions. It really can be beneficial to everyone involved if done properly. 

Why a Bank Statement Loan Could be the Answer to Your Prayers

Not common but a less known type of financing is the bank statement loan. What are they? I got this question from a small business owner recently who was trying to purchase a home. They are essentially a type of loan that allows a buyer to get a mortgage without the traditional documents (taxes, paystubs, etc.) that most loans need in order to prove your income.  They are also sometimes known as “self-employed mortgages” or “alternative documentation loans.”  I’ve had a lot of experience with recently minted small business owners and 1099 (independent contractor) who become frustrated that traditional lenders won’t lend to them due to a lack of “track record”. 

Let’s look at the different types of borrowers who could benefit from this type of loan.

Self-employed: These are the most common borrower for this type of program because they are able to prove that they make an income without having to use paystubs as verification. It may seem like tax returns are the next obvious form of verification, but sometimes things aren’t as they appear because self-employed people have a net income they actually make as well as a net income they claim.  This type of program allows the borrower to provide 12 months of bank statements to show the regular receipt of income.  A lender will still need to see expenses, but they will no longer penalize the borrower for what is written off a tax return.

Seasonal workers: This country has many of them and usually means they spend a single season making their entire year’s income.  Traditionally, a lender would take what the borrower made in a season and annualize it to see how much they have made in a year.  This makes the monthly gross income smaller, therefore making it nearly impossible to qualify for a loan. The bank statement loan would still annualize the income, but you can also use any other income you bring in on a regular basis as shown on your bank statements.  You must hold a seasonal job for at least two years in order to use the income.

Commissioned Employees and Salespeople:  Commission is not a regular receipt of income, some months you make more, some months you make less.  Similar to the seasonal worker, your total income will be annualized by a traditional lender, and your many write-offs will greatly decrease the total amount of income you can use to qualify for a loan.  When using a bank statement to prove income, the lender generally will deduct far fewer expenses, giving you a better chance of approval.

If you have decided that bank statement loans are the best option for you, you should apply with several lenders and compare. Many people believe that bank statement loans are going to offer worse terms than a traditional loan, but that is not always the case.  Each loan has its own advantages and every lender and loan are different, so it’s in your best interest to work with a professional to explore the best options for your circumstances. Of course, I have lenders who can advise on these types of loans and get you into the best lending situation. 

2022 Market Predictions: Is a crash coming next?

The biggest market question hovering in the air right now, no matter where you live, is how is the housing market doing and will it crash in 2022?  The simple answer is that it will not crash this year. There I said it. I don’t like making absolute statements like that, but the forecast for the next 12 to 14 months clearly shows that most likely the housing market is expected to stay robust.  Last year, homeowners found themselves in a market where their houses sold extremely quickly and often for above the asking price.  Supply and demand at its finest, most buyers ended up in bidding wars, and often times buyers would be making offers on several properties before finding themselves the winner of said bidding war.

Note: One caveat is if there is something external to the housing market which causes a DEEP recession, but even then, the demand might overcome this event. 

We are coming off a year in which the price of homes in the United States increased by an incredible 18.8%.  And the market is actually even tighter now than it was before the spring 2021 housing frenzy.  Even Zillow has predicted that the year-over-year rate of home price growth will hit 22%!  That’s historically unprecedented!  By this time next year, the typical U.S. home is expected to be worth almost $400,000.  This outlook prediction is driven by Zillow’s expectation that the current market conditions will persist, with demand for houses far exceeding the supply of available homes.

Most experts agree that housing demand will stay strong throughout 2022.  Spring and summer will likely see an increase in listings, but it is unlikely that there will be enough inventory to meet the demand.  This shortage of listings has created the current trend of houses sometimes selling within hours of being listed.  In fact, the average amount of time that a house is currently on the market is less than 15 days and in most better markets it’s less than a week. 

What about the impact of mortgage interest rates?  Data shows that mortgage interest rates are on the rise (they got hammered late March), which is a challenge that investors and buyers will need to address.  Although rates are not outrageous by historical standards, they are higher than they have been in years – predictions indicate that rates on a 30-year fixed-rate mortgage are likely to hover around 5.5% by the end of the year.  But even with increasing mortgage rates AND higher home prices, the housing market would remain a seller’s market due to you guessed it… high demand and lower inventory.

Something else rarely discussed among real estate professionals is the fact that the Great Recession is still having a strong effect on the housing market. What do I mean? Every decade since the 1950s, this country has built 20 million + homes. From 2010-2020, this country built around 5 million. Toss in a pandemic and gunk up supply chains and experience a labor shortage and here we are. There are a lot of factors causing these that are the less talked about.  There just aren’t enough homes. 

The bottom line?  When the demand is satisfied, prices will stabilize & decline.  The housing market is in far better shape than it was a decade ago.

So… is now the time to buy?  There are always unforeseen variables that can alter the trajectory of the market at any time, so the best strategy is as true now as it ever has been: make sure you can afford the house you buy and still have room to save up for rainy days. Conventional wisdom still rings true… even today. 

Is an Open House a Good idea in this Market? 

So much has changed in the last 3 years when it comes to those tried and true real estate practices. With Covid, the open house has faced the most disruption. After all, a pandemic and inviting strangers into your home didn’t exactly mix well. But now that the pandemic is largely behind us, agents are dusting off their sign-in sheets and getting back into the swing of things. Some agents consider it a good thing to leave the open houses in the past, others see them as an important tool that needs to be brought back into the fray. 

Below are the pros and cons of open houses in a 2022 market…so if you’re a seller (or a listing agent), listen up!

Pros

More Buyers – An open house allows not only for more people to see your home. I always tell my sellers that the process is split into two sections. First, we market the property  (attract buyers) and then we sell it (showings and compel offers). There’s no doubt that an open house makes it easier to see a home, therefore, getting more eyeballs on the property. More eyeballs, more potential offers. Finally, having buyers through an open house means that there is a possibility there will be fewer scheduled showings which allows the seller to actually be in their home more than not. 

Low-pressure environment

In general, open houses are pretty informal and casual, which can help potential buyers feel more comfortable and allow them to really explore the house. Buyers are all different and pacing can be important. 

Allows for a second look

Often a buyer will set up an appointment on a Friday and then take a second look at the weekend ope house. This allows for parents, spouses, kids, etc all to take a look with the buyer. Sometimes they will bring a contractor to get a REALLY close look at the property which can mean more waived inspection scenarios. 

Gives more marketing “UMPH” to a property

Believe it or not, Zillow and realtor.com reward properties that have open houses. Meaning they will put the listing higher because an open house makes it more interesting and more likely to be “clicked” on by the consumer. The internet is all about engagement after all! If you’ve got a property that’s sitting side by side with others, it is something to consider. 

Cons

Unqualified Buyers & Neighbors

Open houses can certainly attract unqualified buyers, “looky-loo’s”, and “nosy neighbors”  You want the people walking through the house to be able to actually buy it, right? Agents don’t mind this because they have the chance to pick up a new client every time someone walks through the door, but these people generally don’t serve well in selling the home unless they want their friend to move into the area. 

Security Issues

An open house allows people to walk through a home with very little supervision even in this day and age of video surveillance. This can lead to potential thefts, damage, or vandalizing of property.  As unpleasant as it is to think about, the reality is that owners should make sure to remove or hide their valuables to lower the chances of something happening. I personally advise all my sellers to take anything they cherish out of the house including sentimentals, firearms, and jewelry. 

Less one-on-one time with potential buyers

An agent will usually be outnumbered during an open house, which means that not everyone will get personal attention, which can sometimes make or break a potential buyers decision-making. This can be especially detrimental for homes that are in some kind of disrepair. Sometimes, it’s strategically more sound to allow for only private showings because you can allow the buyer’s agent to explain what they’re seeing. I recently did an open house where I couldn’t be in two places at once and the home needed someone to explain some of the needed repairs. 

Slim chance of a sale

The vast majority of homes are sold when a buyer has an agent, requests an appointment, and tours a home privately.  The percentage of homes that actually sell as a direct result of an open house is less than 2-3%. These are the hard numbers and have been this way for years. However, the collateral benefits might make this number misleading. For example, if the open house rewarded the listing and made it visible on a realtor.com and then that buyer made a private appointment then it has served its purpose. 

Overall, the open house is probably still gonna be a thing for years to come but it is a bit of a lightning rod issue. Consulting with your agent (like me!) is the best course of action so they can walk you through expectations and the process as a whole. 

Why Won’t My House Sell?

Sometimes homes just won’t sell – but why? Here are some top reasons that could explain everything.

Pricing: The price is too high; this is by far the most common reason that a home is not selling in this market. Rarely if ever are we seeing a lack of demand – meaning sellers are enjoying multiple showings. However, if you have 30 buyers walk through your door on any given weekend and no one wants it, odds are that pricing is the culprit. Especially if you know all other factors have been addressed. When we price homes, we are very strategic in our approach because an overpriced listing can turn a home into a dud in a matter of days. I have clients who ask me what’s wrong with a house after being on the market for only 7 days. Ouch! 

Not Clean: Not sure of the part of the brain that is activated when a buyer sees grime, dust bunnies, and soot, but you can expect fewer offers and not as much enthusiasm from said buyers. This also goes for clutter and lots of stuff on the floor. I always tell my sellers that buyers will forgive you in closets, basement, and garages but all living spaces (places you entertain and sleep) should be tidy and clean. To be fair, most sellers get this and I don’t have to push them too hard to do this, but I am appalled at how some agents present their properties. Clean the place well for a weekend and let ‘er rip!

Neighbors: This is really tough situation, whether disruptive or their property is a mess, the seller has little control over this unless they have a good relationship with their neighbor. This goes for loud dogs (bigger ones especially) as well. My advice is to go knock on your neighbor’s door and explain what you’re trying to accomplish and 90% are cooperative. They’ll either leave for the weekend as well, keep their dog inside a bit more than usual, or clean up their yard. (I love dogs but not everyone does and so you need to market your property to as many people as possible.) 

Location: This one you can’t change nor is there much room for improvement. After all, you can’t change the schools, the topography, neighborhood, etc. I will refer to the above section on pricing and caution sellers from getting in over their heads on how much someone will pay for their house. Without the proper pricing strategy, you could not only get tagged for sitting on the market but then the location as well. Best to really pay attention to pricing strategy. 

So what to do? Hire the agent that is best for the job! One with a proven track record, experience, and online testimonials. You should ask your agents for this information. Believe me, if they are experienced, they will have no trouble telling you. In fact, you might have to stop them from talking about themselves. LOL. If they fumble through it and are less confident it usually means they will be less confident while pricing, giving you frank advice and even negotiating on your behalf.