January 2022

Welcome to 2022! WOW! What a year 2021 was! We would like to wish everyone a Happy New Year and update you on the Mortgage market with news and tips on financing for purchases as well as refinances. 

CONFORMING LOAN LIMITS INCREASE! 

The new limit for conforming loans (FANNIE and FREDDIE) has been increased to $647,200 across the nation for a one-unit home. However, in high-cost areas such as LA and Orange Counties, the high balance limit is $970,800. San Diego has a slightly lower high balance limit, and Riverside and other counties are limited to $647K. What does this mean? Conforming loans have more lenient guidelines for loan approval vs. “Jumbo” loan programs. Great news all around! 

RATES 

Interest rates have begun their inevitable rise from the lows of 2020-2021. It could not last forever, and as the Fed eases up on the buying spree of mortgage-backed securities, we are seeing rates rise. In addition, inflation has kicked in and the economy is improving. What this means for home buyers is there is no time to spare in getting into the housing market or making that “move up.” Interest rates have a far greater effect on affordability than rising home prices. Our advice is to get in while the getting is good! 

HOME VALUES 

Nationwide home prices rose by an average of 19.5% last year. There is a huge shortage of housing across the country. Right now inventory in Orange County is at an all-time low. This means the bidding wars for property will continue. Don’t be fooled into thinking that with interest rates rising, home prices will come down. They won’t -- as there is no inventory! It is a GREAT time to sell! 

LOAN UNDERWRITING AND APPROVAL 

It is all-important to be fully approved for a loan BEFORE you get out and make any offers, so you can be as competitive as possible with shorter time frames for closing, and fewer contingencies. We frequently see buyers experiencing “offer fatigue” after making multiple offers and losing out to a higher bidder. This is why it is best to be as competitive as possible with a full loan approval and shorter or no contingencies. 

Anyone who is self-employed and has an S-Corp or C-Corp should have their draft returns reviewed by their lender PRIOR to filing, if you intend to make a home purchase or refinance this year. We frequently work with tax preparers and CPAs to be sure returns accurately reflect income and are not purposely attempting to minimize the income tax burden. This can kill a loan approval! 

Underwriting guidelines continue to be quite stringent, especially when it comes to self-employeds. Recent business bank statements and up-to-date P&Ls are required for all self-employed borrowers. 

The use of gift funds for down payments, especially with first-time home buyers is increasing. This requires a gift letter and asset statements snapshot from the donor. We are often asked whether this is taxable to the donor or recipient. The short answer is no, but Form 709 should be filed with the IRS annually if the gift exceeds the exempt limit of $16,000 per individual. However it is noteworthy that the current lifetime exclusion is over $12 million per person, so most of us don’t need to worry about the gift tax. We might wish we did! 

ESTATE PLANNING 

We are passionate about estate planning and urge all our client to put a plan in place to care for minor children, and to protect your assets from going through a very costly probate. This is something that should not be put off if you care for your family members. Property and most assets should be titled in a living trust, so your estate is not “probated.” Considering property values in California many homeowners have quite substantial assets. We can refer clients to trusted professionals to assist. 

Please reach out to our team with any questions or concerns you may have. We are here to be a resource for you! 

Karen, Katie and Stephanie