Dog Days of Summer, Rates and Your Home Equity

 It has been an unquestionably hot summer so far, with no end in sight! Days at the beach or in the pool have provided some of the only respite—along with a cold beverage, perhaps a rosé, a crisp dry white, or an Aperol Spritz. And when I get going on wine, I tend to get a little carried away. 😊

Speaking of wine, we're about to head up to Paso Robles for a little wine tasting, and I'm looking forward to discovering some new Picpouls and Albariños. Yes, Paso has finally caught up and realized its climate is quite friendly to these crisp, mineral-driven whites that are growing in popularity.

Okay, back to business!

The Real Estate Market

The real estate market isn't nearly as hot as the weather.

Mortgage rates have remained stubbornly elevated, and recent geopolitical uncertainty has added another layer of volatility. Meanwhile, affordability continues to be one of the biggest concerns I hear from buyers.

The questions I'm hearing most often are:

"Should I buy now or wait?"

And from homeowners:

"How can I access some of my equity without giving up my low-rate first mortgage?"

Fortunately, there are strategies for both.

Want Your Equity? Meet the HELOC and HELOAN

Homeowners who locked in those wonderful low mortgage rates a few years ago are understandably reluctant to refinance their entire mortgage just to access their equity.

That's where a second mortgage may come in.

A HELOC (Home Equity Line of Credit) is generally a variable-rate line of credit. You can draw funds as needed, repay them, and—during the draw period—typically access the available line again. This can be particularly useful for remodeling projects, unexpected expenses, or situations where you don't need all the money at once.

A HELOAN (Home Equity Loan) is different. It is generally a fixed-rate second mortgage with the proceeds funded at closing. You make payments on that loan separately from your existing first mortgage.

And today's second-mortgage programs aren't necessarily one-size-fits-all.

We have access to some very competitive and interesting options, including:

• Second mortgages for homeowners who want to preserve a low-rate first mortgage
• DSCR options for certain rental properties
• Reverse mortgage second-lien solutions in qualifying circumstances
• Loan amounts that can reach as high as $4 million, depending on the program and borrower qualifications

Which one makes sense? That depends entirely on what you're trying to accomplish.

Buyers: Let's Solve the PAYMENT Problem

Affordability is absolutely a challenge right now, but that doesn't necessarily mean you should sit on the sidelines.

Rather than focusing exclusively on the interest rate, I like to look at the entire monthly housing expense and ask:

What can we do to make this payment work?

There may be more options than you think.

A seller-paid 2-1 buydown, for example, can substantially reduce the buyer's interest rate and payment during the first two years of the mortgage.

Gift funds from a family member can help with the down payment or closing costs and may reduce the amount that needs to be financed.

And remember, you don't necessarily need 20% down to buy a home. Depending on the loan program and borrower qualifications, down payments can be as low as 3% or 3.5%—and eligible VA borrowers may purchase with 0% down.

Every situation is different. That's where good planning really matters.

Before deciding that you can't afford to buy—or that you need to wait for rates to fall—let's run the numbers and see what's actually possible.

A Real-Life Example

I'm currently working with a family that provides a perfect example of how these strategies can come together.

The parents have built substantial equity in their home, and now they'd like to use some of that equity to help their adult son purchase his first home.

We're looking at the entire picture: how much equity to access, the best way to access it, how much the parents should contribute, and how to structure the son's financing so that his new monthly payment remains comfortable.

I love these transactions because we're not simply arranging a mortgage. We're helping one generation use the wealth they've created through homeownership to give the next generation a head start.

If you've ever thought about helping a child or grandchild purchase a home, let's talk. There may be several ways to structure it.

Don't Forget About 1031 Exchanges

One last reminder for my real estate investors:

Before you sell an investment property, talk to us about a 1031 exchange.

A properly structured 1031 exchange may allow you to defer capital gains taxes by exchanging qualifying investment real estate for another qualifying property.

We have excellent resources for both 1031 exchange advice and accommodation, and timing is critical. The conversation should happen before the sale closes, not afterward.

If you're considering selling an investment property, please call me early in the process so we can connect you with the appropriate professionals.

As Always...

Whether you're thinking about buying, refinancing, accessing equity, helping your children purchase their first home, or simply wondering what your options are in today's market, I'm always happy to talk through the numbers.

Sometimes the answer is a new loan.

Sometimes it's keeping exactly what you have.

The important thing is knowing the difference.

Enjoy the rest of your summer—and I'll report back on the Paso Albariños! 🍷

Karen Card
The Card Team

What Buyers are Really Asking; Divorce & Life Transitions

Every week I spend time researching the questions buyers are asking Google and ChatGPT before they ever contact a Realtor or lender. My goal is to keep you informed about what your clients are thinking—and to help you answer their questions with confidence.

This Week's Focus: Divorce & Life Transitions

Divorce is one of life's most challenging transitions, and for many people, their home is their largest asset. Unfortunately, one of the biggest mistakes I see is waiting until the divorce is finalized before discussing mortgage financing.

By then, some opportunities may already have been lost.

Here are some of the questions borrowers are asking AI this week:

"Can I keep the house after my divorce?"

Possibly—but the answer depends on much more than simply wanting to keep it.

Can the remaining spouse qualify on their own? Will support income be received, and can it be used for qualification? Is refinancing necessary? These questions should be addressed early in the process, not after the settlement agreement has been signed.

"Does the divorce decree remove me from the mortgage?"

No.

A divorce decree determines who is responsible for the home as part of the legal settlement, but it does not automatically remove a borrower from the mortgage loan. In many cases, refinancing or another approved solution is needed before one spouse is released from liability.  However, this loan will not be considered for the spouse who is  not responsible for the loan, when purchasing a new home.

"Can support income help me qualify?"

Often, yes.

Depending on the loan program and documentation, alimony or child support income may be considered for qualification. The timing, documentation, and history of those payments can make a significant difference.  Typically six months of receipt is required in order to use it.

"Can I buy another home before my divorce is final?"

Sometimes.

Every situation is unique. Factors such as qualifying income, existing mortgage obligations, the terms of the separation agreement, and available assets all play an important role. This is one reason it's so valuable to begin planning early.  I’ve handled these situations before, and so long as there is a court approved property division agreement, it is possible.

Karen's Loan Desk

One of the most rewarding parts of my job is helping clients through major life transitions.

I've worked with many individuals before, during, and after a divorce. While every situation is different, I've learned that the earlier we have the mortgage conversation, the more options we usually have.

Sometimes it's not about finding a loan—it's about creating a strategy that supports the best possible outcome for everyone involved.

The takeaway?

Don't wait until the divorce is final to discuss financing. A conversation early in the process can help avoid surprises and preserve valuable options.

AI Prompt of the Week for Realtors

One of the best ways to use ChatGPT is to communicate with empathy while providing helpful information. Copy and paste this prompt:

Act as an experienced Orange County Realtor. Write a compassionate email to someone going through a divorce who may be concerned about their housing options. The email should be reassuring, educational, and non-salesy. Explain why it's important to speak with a mortgage professional early in the process to understand financing options before major decisions are finalized. End with a gentle invitation to ask questions. Keep it under 300 words.

Realtor Tip of the Week

If you have clients navigating a divorce, separation, or another major life transition, let's have a conversation before the property is listed, refinanced, or awarded in the settlement.

A simple planning session can help answer important questions, identify potential challenges, and give your clients greater confidence as they move forward.

As always, I'm happy to review any scenario, answer questions, or help develop a financing strategy that best serves your clients.

Have a wonderful weekend!

 Karen and the Card Team

ADVERSITY, OPPORTUNITY AND FAST CASH!

 

MARKET UPDATE - ADVERSITY

The latest news for multi-family housing is developers have slowed/stopped new construction.  This is primarily due to higher interest rates coupled with greater difficulty qualifying for loans.  This will translate into higher rents, particularly in the coastal areas of California where housing is already in short supply and high demand.

Translation:  Prospective buyers should not wait for rates or prices to come down, as neither is likely in the next 12 months.  No one anticipates home values to decrease.

OPPORTUNITIES

We are offering a personal loan program – NOT a Mortgage loan – for auto loans, remodels, swimming pools, debt consolidation, recreation and more.  This is not recorded on your home and has no effect on the low rate first mortgage most of our clients have. The turn time on these loans is extremely short, even overnight, and offers a quick and easy way to access fast cash.

Loan amounts can vary from $5,000 to $100,000.  Loans are underwritten based on income, assets, and credit.  The process is completely digital and there are no up-front fees or prepayment penalties.

Click here for the link to a quick qualification process:  Personal Loan Link

REMINDERS

Real estate taxes are coming due, and must be paid by December 10^th to avoid penalties  The second half taxes are due by April 10th.  Such great timing for Christmas and tax time, huh?

Self-employed borrowers should have their taxes reviewed by us prior to filing if they are considering making a home purchase or refinance in the next two years.  Writing off too many expenses can kill a home purchase or refi, unless you want to use a bank statement loan which carries a higher rate.

PERSONAL UPDATES

I’m writing this from Madera (just north of Fresno)  where I am temporarily staying with my sister who suffered a stroke.  My sister lives alone and we were extremely lucky her daughter sounded the alarm when she could not contact her one morning. 

She is improving daily, and we expect a full recovery.  This has been a big wakeup call and reminder to be grateful every day, keep your loved ones close, always do your best and be kind to all.  And, take good care of your health.

As always, call us with any questions or concerns.

 

First COVID, Now A War in Ukraine?

RATES

When clients ask me where rates are heading (nearly every day), I always point out that since we have an international economy today, events around the world can and do affect interest rates here in the US.   Case in point, the markets are currently experiencing dramatic volatility and rates have dropped a bit after a rapid climb in the first Q this year.  How long will it last?  No one can guarantee they will remain on a downward trend, as they have been up and down over the last week.  The bottom line is we can only move forward knowing that eventually rates will continue to rise.  There is nothing like the thrill of receiving three or more reprice notifications during one day!  Up by .25%, down .375%. Yikes!!

The war is having effects in multiple areas including interest rates;  the stock market;  oil prices (as we all can see at the gas pump) and on many other consumer products, as the supply chain is further impacted.   At this juncture no one can predict how long this will last. Only that the poor citizens of Ukraine are feeling much worse pain.

VALUES

Home prices across the country rose last year by an astounding 19%.  In both Los Angeles and Orange Counties, the median home price was $950,000 for the month of January.  Crazy!  Most homeowners have a tremendous amount of equity to play with, whether to pull out cash for upgrades or remodeling, adding a new pool, or to buy another home.  The problem is the short supply of new housing.  I looked at a few Open Houses the past weekend.  It was so nice to actually go to an Open House!   One property was a total teardown with incredible ocean views in the hills of San Clemente, listed at only $1.45 million.  WOW.  We figured it would take at least a $2 million budget to get it to a livable condition.

The lack of inventory is a major contributor to rising home prices.  Our inventory in Southern California is at an all-time low.  That is right, I said an ALL-TIME low.  In some areas condo values rose more quickly than did values of single-family residences, which is an anomaly. This is likely due to higher demand at the lower price levels pushing up those values.

DID YOU KNOW? 

HUD came out with Reverse Loans for purchase with the HECM program in 2009.  I closed a home purchase in March of 2009 with a Reverse loan, for what may have been the first in California.

FUN STUFF

Steve and I began golfing almost every weekend during COVID as one of the few activities we could safely participate in.  While I still don’t have a handicap, I want to report that during our recent golf scramble with 15 couples from our yacht club, we used several of my drives, fairway shots and putts.  YESSSS!

Speaking of the yacht club, things are beginning to return to normalcy with a Mardi Gras bash, weekend brunches and even prime rib night.  Next up:  A weekend cruise to Newport to visit with other yacht clubs.   Steve enjoys crewing on a couple of different boats for the racing events which happen most weekends.  Then we have the Newport to Ensenada race, otherwise known as N2E in April.  I will go down on a tour bus and meet the racers when they get in.  You never know how long the race will take as it all depends on the wind conditions.

Please remember, Life is Good!  And don’t hesitate to call us with any questions you may have.

Holy Moly! Hang On Tight!

The current environment is unprecedented on many fronts. Quarantines and Social Distancing, unemployment is mounting, and the havoc in the mortgage industry is staggering. Mortgage lenders are under tremendous pressure on multiple fronts: volume, rate drops, market volatility and "churning" of their loan portfolios, e.g. early payoffs and rate lock abandonment. This causes a lack of liquidity since once locked, lenders hedge their positions and if the lock is broken, it is costly. Servicing income drops dramatically and forbearance (forgiveness of loan payments) isn't going to help.

APM is NOT a loan servicer, so we do not face the risks of the large servicing companies or "aggregators" of mortgage loan pools. However we do have interest rate risk, which is the risk of not being able to sell loans, once closed, at low rates if pricing and rates increase.

The Fed move to drop the fed rate did not, and does not directly affect mortgage loan rates. But the stimulus package to buy Mortgage Backed Securities (MBS) DOES have a downward effect on rates. This in reality is NOT helping since it is motivating so many borrowers to break current locks and/or refinance their loans, causing huge losses to the above mentioned servicers/aggregators.

What does it all mean? We all need to be patient, and wait for the markets to normalize. This may take a few weeks or months. In the meantime, The Card Team and APM are diligently working through our pipeline of refinance loans and, as always, prioritizing purchase loans. One of the steps we have taken is locking all refinance loans for 60 days on a 30 day lock price, to handle the high volume.

We are here to answer any questions or concerns you may have. We continue to open new refinance loans for our clients, and prep them for processing, floating the rate and not locking yet, while waiting for the market to settle down.

Rate and Travel Updates

Mortgage rates continue to hover near record lows with the Corona virus taking most of the credit! The market flight to security caused a dip in the stock market which provided a boost to US treasuries.

What does it all mean? Right now is a great time to pull cash out of your home for improvements or remodeling, while rates are low. Home prices have continued to increase, as there isn’t a lot of inventory out there, which means it is a great time to sell if you are so inclined.

If you haven’t refinanced recently you can likely lower your rate and payments, even if you aren’t pulling cash out.

Loan limits have increased again for FNMA, Freddie and FHA/VA loans. The high-cost counties, such as Orange and Los Angeles, are up to $765,500 loan limits… which makes it easier to qualify for mortgage financing.

Reverse loans continue to gain in popularity although I still hear some of the myths repeated, such as “the bank owns your home.” NOT!!!

Please reach out to me or Katie with any questions. We are here to help! Visit our website at www.card-team.com.

FAMILY - TRAVEL

We continue to enjoy spending time with our adult children, grandchildren, and friends. The grandchildren, now numbering five, are ages 7,5,3,2 and 1. We took a camping trip to El Capitan, north of Santa Barbara in September, and most of our crew joined us. The weather cooperated and we had a blast swimming and playing on the beach. I actually tried boogie-boarding for the first time, what a hoot.

November saw us traveling to Maui with friends where we stayed at Ka’anapali. We enjoyed hiking to the blowhole, swimming, snorkeling, and got in a number of scuba dives. We saw more sea turtles than ever before, and had our first sighting of Manta Rays. What a delight! One day we did four dives. Water Warriors!

LITTLE DUME

Steve’s boys played at The Troubador last month and they have released an album. WOW! They are amazing. Just search for Little Dume on Spotify or YouTube to tune in and enjoy! They played earlier in the year at our Yacht Club and were a fabulous success. We hope to host them again there soon.

Here is hoping you all have a wonderful 2020!

5 Reasons to Use Reverse Financing

Reverse loans are becoming more "accepted" although there are still some who think they are only for those in dire straits, or are just generally a bad idea. Not so!!! Here are five reasons to use Reverse financing:

1. Pay off an existing home loan to reduce monthly debt by eliminating your monthly payment. No payment is required on a Reverse loan.

2. Place a Line of Credit on your home, for quick and easy access to cash as needed. No payment is required and you only accrue interest on the actual balance of the line of credit.

3. Buy your final retirement home using Reverse financing, vs. all-cash or regular mortgage financing. Increase your buying power, and no payment is required for the Reverse Loan.

4. Access your home's equity to pay for long-term care or prepare your home for aging in place. No payment is required.

5. Access your home's equity to provide regular monthly payments to yourself for additional income. No payment is required and the income is not taxed.

Real Estate in California...What 's Next?

It is that time of year, again...Spring buying season. Home listings are growing in numbers, but where are the buyers? Most homes are sitting on the market longer than in the past few years, and most are selling below list price. We expect activity to pick up, since rates have adjusted down nicely. Most economists see home values flattening out somewhat, but we aren't expecting any drops in value in the near term.
Rates are also flattening out, and we've seen a couple of moments of the dreaded "inverted" yield curve which means that short term rates rise above longer-term rates. This translates to a couple of things: 1. A recession is expected sooner than later, and 2. the marketplace sees more risk in the short term vs. the long term.

What does this mean for you? If you are interested in buying, now is the time to jump while rates remain near historical lows.

We believe Reverse loans are going to continue to gain in popularity due to the aging baby-boomer population. These increase the buying power of a buyer over age 62 when coupled with cash toward the purchase price. They are also very useful for those wishing to retire existing debt on their home to reduce monthly expenditures, or to have a line of credit to use when future needs arise, all without a required monthly payment.

ON THE HOME FRONT

The first quarter has sped by with alarming speed! My grandchildren are growing like weeds, and entertaining us endlessly. They are now six, four, two, one and almost one. WOW! Steve is still commuting to Dallas, but we expect that to wind down this year. My daughter is working with me here at THE CARD TEAM, and we are having a lot of fun and keeping very busy!

We are busier than ever. Between kids, grandkids, Yacht Club events, work and exercise there isn't much downtime. We have also taken up golf, and try to get out on weekends when the weather is nice. Steve is going to crew in the Newport-Ensenada race for the first time and I will cheer from the sidelines when I am not on a wine tasting tour of the wineries near there. We have some scuba diving planned for the year both locally, in Catalina, and in Hawaii later in the year. A camping trip to El Capitan (north of Santa Barbara) is on the books for September, with all our kids and grandkids. It will be wild! When we are all together it is sort of like a tsunami, but always filled with laughter and good times.

Last year we took a couple of scuba trips, one to Cozumel and one to Cabo Pulmo outside Cabo San Lucas. The trip to Cabo Pulmo was combined with some fishing in the Sea of Cortez with a large group of friends, which was a blast. Nothing we caught was big enough to write home about, but it made some for very good eating for ceviche and sashimi. We also went up to our favorite family vacation spots in the High Sierra at Rock Creek for five days with all the family. All fun: lots of hiking, fishing, laughing and card games. In between all that we took quick trips to Catalina, Palm Springs and La Quinta. Phew!

We are looking forward to another fabulous year and wish you the same! Remember, we create experiences that matter.

5 Tips for your best FICO Score Before You Buy

It is always best to prepare well ahead of time for a home purchase, whether first time or fifth time. We like to begin coaching clients three to six months prior to beginning a home search, to be sure our clients are well-prepared. Your Credit score is extremely important for loan-qualifying purposes, and in order to attain the lowest interest rate.

1. DON'T close any revolving credit accounts; pay them down or off but continue to use them periodically.
2. DON'T pay off any collection accounts; activity in the derogatory section of your credit report can lower your scores. If needed they can be paid through escrow.
3. DO keep all your balances at or below 30% of available credit.
4. DO make all credit card payments on time. A late fee incurred is not reported, unless an account goes 30 days late.
5. DON'T cosign on a loan for someone else. If they miss a payment, your credit will be affected negatively.

Boys & Girls Club of America

Our Holiday for Martin Luther King's birthday made me think about what we do for others. In the past I have been actively been involved in my children's schools (geez that was a long time ago!) as far as PTA, PTO, and Bond financing for local school improvements. I was also instrumental in the origination of the Dinosaur Dash in Tustin, a race/walk event to raise funds for the Tustin Public Schools Foundation.

But some of my most memorable work was on the Board of the Tustin Boys & Girls Club. I had the honor to attend a couple of national conventions where there were many young people representing their clubs nationwide. These young adults universally felt the Club saved their lives.

This organization provides things like after-school activities for kids of all ages, as well as meals and transportation to and from school. To this day it makes me tear-up to think of the kids they keep off the streets, and instead active in sports and homework, and heading toward responsible adulthood.

Now that we live in South Orange County, we support the Boys and Girls Club of Capistrano Valley. This is an amazing organization with three locations that serve an average of 480 children every day and 3,000 kids over the course of the year. My husband serves on the board and we support many of their events and fund-raising programs. It is gratifying to say the least, and I can't think of a better way to give back for the fortunate lives we lead.

LOAN LIMITS RAISED FOR 2018

Conventional loan limits for 2018 have just been announced. They will be $453,100 for lower cost areas, but in high cost counties such as Los Angeles and Orange County, the new limit will be $679,650. This represents a big jump from the current high cost county limit of $636,150. The loan limits for VA loans and FHA loans have not yet been announced, but in 2017 they matched the conventional loan limits.

This is great news for current homeowners who may want to refinance and take advantage of the increased equity in their homes. It is also beneficial for home buyers. Conventional loan programs offer more flexibility vs. jumbo loan programs--in terms of higher debt-to-income ratios and less income documentation. The new loan limits represent increased buying/borrowing power.

Please call me if I can be of assistance! I welcome your questions.

Tax Overhaul is Opposed by CAR

The California Association of Realtors has come out vehemently against the proposed changes to our tax code, which would eliminate the tax deduction for state and local taxes, as well as the deduction for mortgage interest for all loans over $500,000. Loans currently held with higher balances (up to $1 million) would be grandfathered in. Further it would eliminate the interest deduction for 2nd home mortgages. Deductible property taxes would be limited to $10,000. According to CAR the average homebuyer in the state would pay an additional $3000 in taxes annually.

Living here in the sunny state where it seldom rains, this would definitely put a dark cloud over the real estate market. Our median home price here in Orange County is $790,000 and in LA County it is $595,000. Already, home affordability rates in Southern California have fallen to the lowest level since 2008 and statewide housing affordability fell to a 10-year low as the tight housing market has driven prices higher and higher. The percentage of California home buyers who can afford a median-priced home in 3rd Q 2017 fell to 28%. These statistics do not apply to condos but to single family homes. Condos are more affordable, and 38% of Californians can afford the $440,000 median-priced condo.

To be clear, all these statistics assume a 20% down payment. With less down (including many first-timers) the affordability is lower...and with more down payment, affordability rises.

But, here in California and other high-price states such as New York, affordability will drop even more if the tax bill goes through as proposed. Real estate values will surely drop as fewer and fewer buyers can afford homes. A recent article in the WSJ notes that in NYC sales are slowing as buyers ponder the effect the tax changes could have to their disposable income.

We always advise clients as to the after-tax consequence of owning a home with a mortgage, and how the interest and RE taxes will provide them with a deduction on their tax return. We'll see!

Loans for Self-Employeds

I can't begin to tell you how many times I've had the opportunity to close a home loan for a self-employed individual or family after they have been turned down elsewhere. Maybe it is because I care enough about my clients to take the time to carefully analyze both individual and business tax returns, to understand what their real income is, at least according to standard underwriting practices.

Are there loan programs out there for those who can't qualify with income shown on tax returns? Yes, but they usually rely on deposits either to individual or business bank statements...and they typically require a larger down payment, and carry higher interest rates. Some programs today only require one year's business returns, without averaging income over a two-year period--which helps many.

Any way it works out best for the client, I love solving problems--and seeing them achieve their dream home, or dream loan. Today I am helping an artist who wants to buy a home but doesn't show much income on her tax returns. By eliminating her studio rent, which she she won't need once she is a homeowner, we can attribute more income to her in order to help her qualify for a larger loan.

Sometimes I will completely eliminate a self-employed spouse from the loan application, and just take the W-2 employee in order to qualify. It does take thinking outside the box. And TEAMWORK

!

FNMA Relaxes Guidelines

This is great news for both purchase and refinance loans at the conforming loan level, up to $636K in Orange and LA counties.

Updates include:

* Debt-to-income ratios up to 50% from previous 45% max
* Loan to Value for ARM loans up to 95%
* One year's tax returns required for self-employeds
* Disputes on credit report do not need to be removed
* Timeshares now treated as installment debt vs. mortgage loans
* Student loans in deferment or income based payments accepted as reported on credit report
* Alimony payments reduce income vs. being taken as a debt against income
* Mortgages and/or debts paid by others are excluded from debt calculations

These make qualifying for a mortgage much easier for many.

Big news in my office is the new addition to my team of my daughter Katie, who is a loan officer in training. Keeping it all in the family!