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

MARKET UPDATE AND REVERSE LOAN INFO

Interest Rates have begun to rise again, after a drop last month. However, we are still better off than in the 1st Q of this year. The economy is improving, slowly but surely! You can still find rates in the 3’s if you are willing to go for an ARM, or a Government loan (FHA or VA) and depending on your loan size, credit scores, loan purpose, etc. etc. Most programs have rates in the low to mid-4’s. Realistically we are still very near the bottom of the rate cycle. Purchase specials for jumbo loans are lower than most conventional loan programs.

I just concluded a rent vs. buy analysis for clients, and determined they were better off, especially on an after-tax basis, to buy vs. trying to find a rental. The rental market is just crazy, and availability is scarce!

Reverse Loans are gaining in market acceptance. Borrowers are finally understanding that they still own the home, can sell it or refinance if they wish. The biggest benefit of these loans is the ability to have a line of credit allowing draws as needed for emergencies or major expenses (a roof, a car, etc.) The unused portion of the line available increases or grows like an investment, so over time there is more credit available. I’ve run these scenarios for clients as well as investment professionals, who can see that in ten years the credit line will nearly double.

This is a very useful retirement planning tool. A client age 63 with a line of credit beginning at $320,000 and home value of $636,000 or higher will have a line of credit available in the amount of $573,000 in ten years, assuming no draws during the first ten years, and a home free and clear. This is essentially a return of over $550,000 on initial costs (investment) of $11,000 in upfront costs (including escrow, title, and Mortgage insurance.) Not bad!

Home Remodeling is on the rise, especially here in the OC. Homeowners have seen tremendous appreciation since the recession, and many are taking advantage of their increased equity to pull cash out for a makeover. Kitchens and bathrooms top the list. Landscape upgrades are another popular item. A recent study shows that 15% of California homeowners plan to remodel in the next year. We recently remodeled our bathrooms--and what a difference! We LOVE them!

Family and Travel News!

Paso Robles is really beautiful, and it reminds us of Napa/Sonoma over 30 years ago. We went for a long weekend in April with dear friends, and had a blast visiting wineries (not too many in one day!!) hiking, picnicking and dining. Our favorites were Daou for a gorgeous setting, but we had extra-special tastings and treatment at Opolo, www.opolo.com Epoch www.epochwines.com and Four Lanterns. www.fourlanternswinery.com

We threw in a drive to the coast to visit a couple of dive bars in Cayucos.

We dined at Artisan (highly rated) but our favorite…after two days of wine tasting…was Fish Gaucho. www.fishgaucho.com They offered great high-end Mexican food, heavy on the seafood. Highly recommended.

Our trip took us along the coastal route through Santa Barbara coming and going, so of course we stopped at Brophy Bros in the SB Harbor on the way up, and at Beachside Bar-Café on the way back, in Isla Vista. Lots of good eating and fine wines!

In June we headed out to Bermuda for the first leg of an 18 day trip. We watched two days of racing for the America’s Cup; went scuba diving one day (too rough after that for diving) and did lots of sunning, swimming and touring. Bermuda is beautiful but extremely expensive. We quickly learned we were better off to pick up dinner “to go” at Mr. Chicken, or order pizza at our lodging (St. George’s Club) than to pay top dollar for mostly mediocre food. We still had a fabulous time! Too bad we lost the Cup to New Zealand in the finals, but we have faith America will be back!

Next leg we flew to Tortola (British Virgin Islands) to pick up our 48 foot Catamaran and set out on our week-long sailing adventure with two other couples. These vessels are basically floating condos with sails, with four bedrooms and private baths/showers. I highly recommend this trip although you might want to hire a captain if you aren’t comfortable sailing on your own. We had a few minor issues with malfunctions (mostly of the mechanical type) but all-in-all it was smooth sailing and/or motoring, depending on the winds and our direction to the next port.

We stopped at different bays every night and moored all but one night. We ventured onto land for dinner all but one evening; danced, listened to music, and generally had a wonderful time. The most exciting moments centered around our dingy rides to shore (entrance and exit can be tricky) but this provided for many laughs and a few unexpected swims. Identities withheld.

We had three days of very good diving and were very happy with the sites and the dive masters. But it was a pain to lug all the scuba equipment around from one locale to the next.
Favorite spots: Marina Caye, Cane Garden Bay, Bitter End and Norman Island. Also the Baths are a must-see.

Finally we flew to San Juan, Puerto Rico for two nights at El Convento, a wonderful hotel in Old Town San Juan. You can’t really go wrong anywhere here in Old Town. Most of the restaurants offer Tapas. The food was amazing—best of our trip—and very reasonable. The Hotel is highly recommended as the place to stay, and also very reasonably priced with outstanding service. We loved the colors, the history, the music, the rain, and the food. I want to return!

NEXT UP:
My daughter and granddaughter are visiting for a few weeks this month and I can’t wait. Baby Kai is almost 10 months, and moving fast. I need to purchase a play yard to keep her under wraps while they are here. Can’t wait!

Steve and I continue to be active in the Dana Point Yacht Club. He's started racing, and I've joined the Race Committee to help with scoring (not an easy task!) We've made so many new friends and enjoy our time there.

I love hearing about your adventures too, so please write me! Keep in touch!