Preferred Properties of Texas

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Mortgage Interest Rates Fall To Their Lowest Rate Ever Recorded, Again

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The threshold many thought could never be crossed, has been crossed.

The average interest rate for a 30-year mortgage dropped below 3%, as Freddie Mac reported yesterday, settling in at 2.98% for the week that ended July 16th. For a 15 year loan the average rate was 2.58%. Once again interest rates have reached the lowest rates ever recorded in the fifty years that Freddie Mac has been tracking the data.

As expected, the continued decline has had the corresponding increases in demand. Even leading up to last week, when rates were hovering just above the 3% mark, refinance applications saw an increase of 12%, which is 107% higher than they were a year ago, according to a report from the Mortgage Bankers Association. Purchase applications did see a small decrease, of 6%, compared to the week before. But after seeing a 33% surge the week before, it is most likely due to a post-holiday slowdown. Compared to one year ago, purchase applications were 16% higher and it is the eighth consecutive week they have been higher than the same week a year previously.

The demand from buyers was already high before the Covid pandemic slowed down activity, but with such low interest rates even those who were thinking of waiting it out for another year are coming off the sidelines to try and lock in a low rate. Of those purchase applications, only 3% were for an adjustable rate mortgage.

However, Sam Khater, Freddie Mac’s Chief Economist, cautions against becoming overly optimistic saying in the statement, “…the countervailing force for the economy has been the rise in new virus cases which has caused the economic recovery to stagnate, and this economic pause puts many temporary layoffs at risk of ossifying into permanent job losses.”

The real test will be a few months from now when we have a clearer picture of whether or not businesses and retail sales will return to normal. Could mortgage rates go below 2%?

 

 

Changes to 1031 Exchange Deadlines

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From the pre-coronavirus world 15 was a significant date, representing the deadline to U.S. citizens and taxpayers to file federal income taxation. Nonetheless, in the present environment, that deadline has been pushed to July 15, 2020.

The deadline is Also important for people using section 1031 of the U.S. Internal Revenue Code, which permits capital gains tax deferrals on investment property sales. The IRC section entitled “Exchange of real property held for productive use or investment” enables traders to “trade” their original assets into “property of like kind.”

Prior investors, to the outbreak Involved in this exchange could have 45 days from when the land was sold to come across a substitute house. Investors will be asked to pay taxes to the capital gains in the initial sale if this replacement property was not discovered.

Together with the Effects of Covid-19, the IRS Extended that 45-day deadline for “in-flight” investors at the center of the exchange process whose first home sales dates dropped between April 1, 2020 and July 14, 2020. These investors must discover that replacement house.

So, before, an investor that offered Their advantage during the first week of April as a part of a 1031 exchange could have been required to find a replacement flat complex or duplex with mid-May. More than two weeks in the current environment that investor has experienced.

While this extension might seem Beneficial for 1031 exchangers, the position is a double-edged sword.

So, Most Investors, So Few Properties

1 issue faced by and Other 1031 exchange investors entails demand and supply.

Our company has Determined that there’s approximately $10 million worth of 1031 exchange equity seeking out replacement properties. This equity originates from a few sources. The first entails investors that may have closed on their properties in late May starting the timer to find a replacement advantage. The source includes investors whose deadlines are in mid-July, although whose first properties sold in April. These things have found their replacement possessions. What this means is investors competing for the identical supply.

Speaking of supply, the available Property assets for exchange or sale has not changed much. Due to the outbreak, availability has decreased. In 1 scenario, the source of duplexes and rental homes has diminished by 20%. Much like lack is evident amongst net-lease and other real estate properties.

Nevertheless, sellers, are worried to dispose of their real estate due to the recession. They are holding on to their own possessions, awaiting the sidelines for the economy. Out of the market, sellers are pulling their properties in different instances.

Investors fortunate Enough to locate replacement properties are currently discovering enormous ranges between their offerings and what vendors are willing to accept. When creating their offerings, leading to lower bids whereas buyers have been eyeing current financial uncertainties sellers are requesting for pricing. This disconnect is leading to deals and sales that is stalled.

Bank Blockages

We’ve found that approximately 80% of 1031 exchange trades need a mortgage to meet the essential requirements for a thing. The good news is that banks have been currently sitting on solid capital reserves. The terrible news is that accessing that capital is growing more challenging.

Now’s banks and financing Associations are up for their own elbows that are figurative at a glut of loan forbearance jobs and refinancing software. These associations are also working for businesses and individuals together with Covid-19-related applications, such as cash and the Payback Protection Program and credit aid methods. This means less time is available for lending employees to underwrite and issue mortgages that are original, leading to longer time frames for blessings. If the deadline is bypassed by those time frames, the creditors might be on the hook for further taxes.

Furthermore, strict lending requirements imply Investors need leading credit scores (with a FICO score of 700 for several lenders) to qualify for the mortgages. Lower agreements also have been a problem, meaning equity demands. Adding to the uncertainty is that creditors can retrade, or pull, up financing until closure.

 

Getting To The July 15 End Line

Having introduced several the Problems exchange investors are facing, here are a couple of solutions.

First, in case it has not happened Now’s the opportunity to start an in-depth search for this replacement property. Investors must also be realistic regarding making offers. It is a seller’s market, and now is not necessarily time for discussions in efforts to lower the asking price if a bidding does need to pen out to make sense.

Second, it is important that investors Open a dialogue with their creditors to ascertain their funding eligibility, and to understand the approximate time frame for loan application and approval.

Even though the 1031 exchange extension has Provided some breathing room, it’s important that investors never waste any additional time in discovering that replacement property or trimming down a loan to finance it. The final clock is ticking. Attempting to waive this timer may indicate a hefty tax bill as soon as the July 15 deadline rolls up.

Complete disclosure. The Information provided here is not financial or investment, tax advice. You Should consult a certified professional for advice concerning your specific situation.

Difference in Financing Vacation Home vs. Investment Property

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Among those factors’ lenders refer to if assessing Financing Program is their property’s occupancy. Lenders understand that somebody who is currently facing some issues that are unfavorable and owns properties would be the main residence of the owner. Enable them to go prior to a residence or owners in duress will try to market houses that are non-occupied first. They must have someplace to live. Lenders supply interest rates to get a home in comparison with a investment property. However, what about a holiday home? Holiday homes are inhabited from the owners at distinct times throughout the year but nevertheless maintain their home as their property. Are there any gaps between funding a vacation house in contrast to a investment property?

There Are rates and distinctions as it pertains to the 2 kinds of houses, and terms can differ. Lenders can think about a holiday home inclined to be allowed go when compared with your rental. But is a definition about what constitutes a holiday home instead of a home. Lenders can reduce down payment requirements and can provide rates for a holiday home in contrast to your home. However, what signifies a home for not a lease and a holiday home? When they are not residing in the holiday home many who have holiday homes rent out the home. In the mind of a lender, there are approaches to ascertain whether the house is not and a holiday home a lease.

The Condition is that the property must be inhabited from the owners to get more or 30 days out of the year. The house also needs to be a single-family dwelling and cannot function as a duplex or 2-4 device properties and the house must be appropriate to live yearlong. Consider example of a cottage in the hills where it becomes heavy snowfall in winter which makes it hard to get into the cottage. If a home will be eligible as a holiday home rather than a leasing how do a creditor understand? In other words, the buyers allow the lender to know of the goals. By checking a box to the loan 11, they do this. There are 3 choices to assess: Main Residence, Secondary Investment and Residence. It.

On An investment land, the flip side may command a deposit of 20 percent or even more. Interest rates to an investment property in contrast to your holiday home could be anywhere from 0.25percent to 0.50% higher. Meaning much more money and prices. It needs to be mentioned that the income in the unit cannot be employed to qualify to your buy in the event the house is a first-time investment, as it pertains to qualifying for an investment house. With purchases of properties, the revenue generated may be used to qualify. Also, the income from the leases cannot be employed to qualify although Holiday homes might be leased out throughout the year occasionally.

There Are a few tax consequences as it pertains to properties you Should go over a deal. The IRS such as Designates the house as an investment when you are planning to reside at the house more Than over 10 percent of this time or even 14 days from the year that it’s leased out. I Know it is sort of “getting in the weeds” if parsing a investment a Holiday house, however, the status will not matter.

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HOW TO FINANCIALLY PREPARE YOURSELF BEFORE LOOKING AT A HOME

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Prepare Financially Before Looking at Homes

Too often home buyers fail to prepare themselves financially before looking for a home to purchase. Doing so is a common mistake that many future home buyers make even though this may be the largest purchase of their lives. Not taking the proper steps to set yourself up for success could mean that you do not get your dream home, or it costs you more than it should.

Here are some of the best tips for preparing yourself financially before starting the home search process. By doing so you’ll be two steps ahead of the game and well on your way to home ownership!

CONNECT WITH A LENDER FAR IN ADVANCE

Before you start driving around neighborhoods, flipping through listings online or even stopping in to speak with a Realtor, it would be a good idea to know what your buying power is today. If you have a goal to be able to buy into a particular neighborhood, you should put a plan in place to be able to achieve that.

Speaking with a lender first to develop a plan of action on how you can qualify to buy a home in that area or price range is critical.

My recommendation is that you have an initial discussion with a lender nine months to one year in advance. Sound crazy? I know many people do not know that far in advance that they may be buying a home next year. For those who do, this is extremely important.

WHY IS IT IMPORTANT TO PLAN SO FAR IN ADVANCE?

First, your lender will let you know what you can qualify for today based upon your income, down payment and credit score.  There are other factors which play a part including credit events and large monthly payments on your credit report.

Income – Income sometimes is difficult to change in one year. Lenders will be looking at your last two years’ tax returns and recent pay stubs when you are ready to apply. They will also require that you have a two-year work history.

Some individuals decide to take a break for personal reasons without realizing that a gap in employment may prevent them from getting loan approval. Documenting your income is essential as well. If you are in a cash business, then you should begin depositing that money into an account on a regular basis so that you can qualify for a bank statement loan. These are just a few examples of what your lender will discuss with you.

Down Payment – This is extremely important, and it will partially determine your buying power. It is also connected to the various loan programs that you may or may not qualify for.  You will need to have those down payment funds in your bank account three months before you submit a loan application.

If you have little to no down payment and do not think you can raise additional funds over the next nine months, then your lender will discuss low down payment and loan program options which will then help determine your realistic price range.

If you can get to a twenty percent down payment that is ideal. When you don’t have at least twenty percent to put down, you’ll often be required to pay private mortgage insurance.

PMI is a useless fee that only benefits the lender as protection in the event you default on your loan. Most people will try to stop paying private mortgage insurance as soon as they can.

Credit Score – Your credit score plays a significant role here. It will have an impact on your final mortgage rate, in some instances your down payment requirement, or whether you are qualified at all for a mortgage. Borrowers with the best credit scores generally will get the lowest mortgage interest rate. Therefore it makes sense to put a lot of work into improving your financial status.

The good news though is that it is not that hard to improve your credit scores in as little as 6 months or less. There are creative ways to do it yourself and even some reputable services out there who know how to get your scores raised for you.

Do your best to target a score of 680 or above. There are lenders that can find a bad credit mortgage for you with scores as low as 500 but then your down payment requirement and your rate will be much different.

Credit Events – A credit event is a bankruptcy, foreclosure and in some instances collections. If you have a bankruptcy or foreclosure, your lender needs to know up front so he or she can plan for this. It is preferable to have had these two years prior to applying for a loan.

Less than two years out of bankruptcy for example will prevent you from getting an FHA loan. Collections need to be dealt with. Pay outstanding collection amounts and work to have them removed from your credit report. That can be negotiated with the creditor as part of the payment agreement.

Large Payments on Your Credit Report – Too often potential home buyers fail to qualify because they have too many other minimum monthly payments showing up on their credit report. During the qualification process, lenders need to factor your future mortgage payment as well as the monthly obligations that appear on your credit report.

Together, and when divided into your gross monthly income they make your debt to income ratio (DTI). Each loan program has a maximum DTI allowed. The less that you have in OTHER monthly payments on your credit report, the larger the loan you will be able to qualify for.

In this example, you can see that with a gross monthly income of $6,500, this person would qualify for a $300k loan at current rates using a maximum DTI of 43%. At the bottom, you can see how much more buying power this person has when the other monthly payments are removed.

This example above should hopefully explain why it is important to keep your credit report free from other monthly obligations. If you think there is a chance that you may buy a home in the near future, then do not buy a new car. At least not without discussing the implications with your lender.

In the example above, the person could afford $88k more if there was no car payment when applying for the loan.  The truth is that auto lending is much more lenient when it comes to qualifying. Once you are approved and close on your home loan, there is an excellent chance that you can then go and buy the car you want.

RESERVE FUNDS

The cash needed to buy a home is not just about the down payment and closing costs. Lenders will require a few months’ reserves (check with your lender). They want to be sure that if you have a job loss that you can at least make a few payments before you are out of money.

Realistically, you need to plan for a lot more than that. When you buy your home, do you think you may need some money to fix it up the way you want? Even with new construction, there are expenses.

Do you need to buy furniture? Do you own basic home needs like a lawn mower? This is also part of the planning process. Throwing everything you have into your initial purchase without anything left over makes you “house poor” and with one small setback can land you in a very difficult scenario where you could lose your home.

FINAL PERSPECTIVE

Once you have this plan developed with the assistance of a lender, then you can target price points and specific towns or neighborhoods. You will be able to spend time focusing on homes that are a true reality for you.

Developing a plan far in advance and sticking to it will also help make the home buying process much easier and will take the stress out of finding a mortgage. Your realtor will also be pleasantly surprised to know that you have taken the time to make sure you have the ability financially to purchase the home.

If you are thinking about looking for a home at some point in the future, contact a lender today to have a preliminary discussion.

Homebuyers Are in the Mood to Buy Today

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Home buying process / Finding a home - Looking at homes

According to the latest FreddieMac Quarterly Forecast, mortgage interest rates have fallen to historically low levels this spring and they’re projected to remain low. This means there’s a huge incentive for buyers who are ready to purchase. And homeowners looking for eager buyers can take advantage of this opportune time to sell as well.

There’s a very positive outlook on interest rates going forward, as the projections from the FreddieMac report indicate continued lows into 2021:

“Going forward, we forecast the 30-year fixed-rate mortgage to remain low, falling to a yearly average of 3.4% in 2020 and 3.2% in 2021.”

 With mortgage rates hovering at such compelling places, ongoing buyer interest is bound to keep driving the housing market forward. Rates also reached another record low last week, so homebuyers are in what FreddieMac is identifying as the buying mood:

“While the rebound in the economy is uneven, one segment that is exhibiting strength is the housing market. Purchase demand activity is up over twenty percent from a year ago, the highest since January 2009. Mortgage rates have hit another record low due to declining inflationary pressures, putting many homebuyers in the buying mood. However, it will be difficult to sustain the momentum in demand as unsold inventory was at near record lows coming into the pandemic and it has only dropped since then.”

There’s no doubt that even though buyers are ready to purchase, it’s hard for many of them to find a home to buy today. Mortgage rates aren’t the only thing hovering near all-time lows; homes available for sale are too. With housing inventory as scarce as it is today – a nearly 20% year-over-year decline in available homes to purchase – keeping buyers in the purchasing mood may be tough if they can’t find a home to buy.

What does this mean for buyers?

Competition is hot with so few homes available for purchase and low mortgage rates are helping to drive affordability as well. Getting pre-approved now will help you gain a competitive advantage and accelerate the homebuying process, so you’re ready to go when you find that perfect home you’d like to buy. Working quickly and efficiently with a trusted real estate professional will help put you in a position to act fast when you’re ready to make your move.

What does this mean for sellers?

If you’re thinking of selling your house, know that the motivation for buyers to purchase right now is as high as ever with rates where they are today. Selling now before other sellers come to market in your neighborhood this summer might put your house high on the list for many buyers. Homebuyers are clearly in the mood to buy, and with today’s safety guidelines and precautions in place to show your house, confidence is also on your side.

Bottom Line

 Whether you’re looking to buy or sell, there’s great motivation to be in the housing market, especially with mortgage rates hovering at this historic all-time low. Reach out to a local real estate professional today to make sure you’re ready to make your mo

JUST LISTED!

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Listing Photo

7221 Hwy 6 in DeLeon, Texas
Listed at $549,000
Wonderfully well kept rock home on 40 plus acres of irrigated coastal just off Hwy 6 between Dublin and De Leon. Property has 3 wells and well kept producing coastal field. Home is older but nothing is out of place it has been cared for and kept in great condition. Most items in the house can stay when sold. This property is a great opportunity for anyone to plant there roots and get out of the city.

Give Preferred Properties of Texas a call to schedule showing.

Preferred Properties of Texas

(254) 965-7775|Contact Preferred Properties of Texas