I haven't written much lately about travel and fun, but I've certainly managed to squeeze some in!
I recently spent four days in Bermuda Dunes celebrating a birthday at an amazing home complete with our own pickleball court, sand volleyball, ping pong and a swimming pool with a slide. Much fun was had playing pickleball and Mahjong!
Then it was off to San Diego to watch my grandchildren race their Sabots while their parents were off gallivanting around the world. San Diego Yacht Club is always a fun place to spend a weekend.
Next up is Cabo Pulmo for some scuba diving—one of our favorite dive destinations. We're hoping for lots of fish, maybe some sharks and, if we're really lucky, whale sharks! We'll finish in La Paz, staying at the marina while our friends from DPYC head out fishing. Hopefully they'll return with somthing good for dinner!
And now, back to real estate…
MORTGAGE RATES ARE OVER 7%. NOW WHAT?
Take it from me—the sky is not falling…but we sure wish interest rates would!
I've been in the mortgage business long enough to have seen just about every kind of market. Homes will continue to sell and buyers will continue to buy them. The numbers have changed, but that simply means we have to look at financing a little differently.
One option getting renewed attention is the Adjustable-Rate Mortgage, or ARM.
Before the Great Recession, ARMs were quite common. In fact, many of the loans I originated were 5-year ARMs. Why? Because many California homeowners didn't keep the same mortgage for decades. They moved, refinanced to access equity, or refinanced when better rates became available.
ARMs fell out of favor after the mortgage meltdown, along with many loan products that were considered risky. Today's ARMs, however, are not necessarily the same products borrowers may remember from that era.
With long-term fixed rates where they are today, ARMs are worth another look. They aren't as readily available as they once were, but I do have sources for them.
The important question isn't simply, “What's the lowest rate?” It's “Which loan structure makes the most sense for how long you expect to own the home and keep the mortgage?”
SELLER CREDITS — ONE OF MY FAVORITE STRATEGIES
One of my favorite moves is to have an offer accepted on a property and THEN, when appropriate, renegotiate the purchase price UP. Why on earth would we do that?
To generate a seller credit that can save the buyer a substantial amount of cash out of pocket.
For example, rather than purchasing a home for $1,000,000, we might restructure the transaction at $1,020,000 with a $20,000 seller credit toward allowable closing costs, prepaid expenses or a rate buydown. The seller's net can remain essentially the same, while the buyer gets $20,000 of real benefit toward the financing.
And here's something many buyers—and even some Realtors—don't realize: the appraisal does not necessarily have to come in at the increased purchase price.
The lender will base the loan on the applicable value under the loan program. If the buyer is making a large down payment, as one of my current clients is doing, there may be plenty of room for an appraisal below the contract price without changing the loan amount at all. With a smaller down payment, an appraisal below the contract price could require the buyer to bring some additional cash.
Of course, seller credits are subject to the limits and eligible uses of the particular loan program. That's why I like to get involved before the offer is structured—or immediately afterward.
Sometimes the best negotiation isn't getting the seller to lower the price. It's getting the seller to help solve the buyer's financing problem.
SELF-EMPLOYED? PLEASE TALK TO ME BEFORE YEAR-END!
If you're self-employed and think you may buy or refinance real estate next year, now is the time for us to talk—not after your tax returns have been filed.
Whenever possible, I like to review the financial picture with my self-employed clients before year-end and coordinate with their tax professional as appropriate. That gives us an opportunity to understand how their tax-return income may affect mortgage qualification before decisions become final.
And sometimes the answer isn't changing anything on the tax return at all.
We have a variety of financing options that may not require traditional tax-return income qualification, including bank-statement and other alternative-documentation programs.
The important part is pre-planning.
Please don't call me in April and say, “I just filed my taxes and now I'd like to buy a house.” 😊
Call me before year-end so we can look at the options first.
FROM KAREN'S DESK — A REAL-LIFE SOLUTION
This month I worked with a client who wanted to pull cash out of a rental property to pay for remodeling and upgrades.
Both the rental and the client's primary residence were owned free and clear, so rather than automatically putting the new financing on the rental, we looked at the entire picture.
The better solution? A Home Equity Line of Credit (HELOC) on the primary residence, where we could obtain a lower rate than financing the investment property.
I also like using a line of credit for projects like this because remodeling expenses don't usually happen all at once. With a HELOC, the borrower can draw funds as the project progresses and pay interest only on the amount actually borrowed, subject to the terms of the line. Why borrow—and pay interest on—money you won't need for another six months?
Later, if it makes sense, we can evaluate converting or refinancing the outstanding balance into fixed-rate financing.
It's a good reminder that mortgage planning isn't just about finding a rate. It's about looking at the entire picture and finding the financing structure that works best for that particular client.
