Over 4 million Americans have put their loans into forbearance.
Up until recently, there has been a lot of uncertainty about what it means when a borrower’s loan goes into forbearance. Will there be a huge lump sum owed at the end of the forbearance period? Will it have an impact on credit? Will people be able to purchase or refinance in the future if a loan has gone into forbearance? Initially, the CARES Act did not provide clear guidelines or statements regarding any of those questions, resulting in many borrowers unable to take advantage of record low rates and uncertain if the forbearance policies in place would cause more harm than good.
Now for the good news. On Tuesday, May 19th, the Federal Housing Agency (Fannie Mae and Freddie Mac) provided clarity regarding what forbearance means to borrowers, and gave guidance on how Fannie Mae and Freddie Mac loans will handle repayment, as well as how it will affect a borrower in the future.
Here’s what it means for you.
Let us start by saying, if you’ve not been impacted financially by COVID-19 and can keep paying your payments on time and in full, you should. Forbearance or deferment is not forgiveness, and that money does not go away. So, if you can still pay, that is your best option.
Can you purchase or refinance in the future? Yes! Fannie Mae and Freddie Mac borrowers will be allowed to purchase a new home or refinance their current mortgage even if a loan has gone into forbearance. The borrower must show three consecutive months of payments after the forbearance period has ended. Additionally, if your loan has gone into forbearance accidentally (many Fannie Mae and Freddie Mac loans were being placed into forbearance, if a borrower even breathed the word), you can purchase or refinance immediately if your payments are up to date, without having to wait the three-month period.
Will you have to owe a lump sum at the end of your forbearance period? Not unless you want to. Here are a few ways borrowers can exit a forbearance plan:
- A borrower can pay the sum of the missed payments in full when their forbearance period ends.
- A borrower can defer the payments to the end of the loan. For example, if you were in forbearance for six months, you could tack those six months onto the end of your loan, adding an additional six months of payments before maturity. You can do this for up to 12 months, per the Federal Housing Finance Agency.
- A borrower can use a repayment plan. They can pay the amount due or missed payments, over the course of 36 months or until they are up to date on their payments.
At Love Your Hood, we’re committed to being a resource for you and all of your housing needs. Please don’t hesitate to reach out to one of our trusted realtors if you have any questions regarding forbearance, or buying and selling in the current climate.
Let’s address the elephant in the real-estate-market-room: the Federal Reserve dropped interest rates to zero.
So… What does that mean?
The reason the Fed has dropped rates to zero is to support the economy during the nation’s current self-quarantine. It’s looking like COVID-19 is not going away anytime soon, and the economy is feeling that impact in several ways.
With everyone holed up to avoid the virus, consumer spending is down. Making up 70% of the GDP, consumer spending’s dip is negatively affecting industries such as travel, entertainment, hospitality, and dining. This loss of business may lead to the laying off of workers in those industries, in turn creating a further lack of spending. Last week, we shifted from a bull market to a bear market, meaning stock markets are down at least 20% from recent highs. Investors are converting to cash and to other, safer investments due to this consumer spending concern.
The drop to zero is also to provide easier access to business and personal borrowing to weather this financial storm. It will provide businesses the opportunity to acquire short-term loans to help maintain payroll, keep employees, and keep doors open.
It’s important to note that mortgage interest rates are not necessarily directly correlated with the Fed’s rates. While mortgage rates are still at an all-time low, this doesn’t mean they will continue decreasing (however, this is still possible).
The good news in this is that the housing market remains strong. We ended February with a supply of 4,835 homes on the market (attached and detached). To add context to this, the record high for February was back in 2006, where we ended with 25,484 active homes on the market, while heading into a recession! So, demand is still high, and supply is still very low.
The buyer side of the market continues to be competitive, often with multiple offers over list price. With COVID-19 spreading, we anticipate a buyer slowdown as buyers avoid public places, like open house tours. However, this also presents an opportunity to continue (or begin) your home search in a less competitive environment, at least temporarily. Once the virus begins to stabilize and financial markets start to recover, you can bet it will be a mad dash to start touring listings.
Sellers remain in the power seat in this market in almost all price points — this is with the exception of homes over one million, where buyers are able to take back the process a bit more.
So, with the safety of our clients and our employees as our priority at this time, all Love Your Hood Brokers will be taking the recommended precautions against COVID-19. If anyone at Love Your Hood becomes sick, you can rest easy knowing they will be home, and another one of our amazing (and healthy!) team members will assist you with any property tours. We are also available to do virtual video tours of properties for you while you stay safely at home — please reach out to us to schedule one.
Here are the precautionary measures we will be taking to ensure that your home buying and/or selling journey is not affected:
- We will carry disinfectant wipes to clean all surface areas — particularly lockboxes, keys, and doorknobs.
- We will ask you to please refrain from touching any surfaces when touring homes.
- If you’re showing signs of illness, please let us know. We can do a video tour on any available home.
- Our entire team will be working from home as much as possible to do our part in slowing the spread of the virus and flattening the curve.
- All meetings will be done via conference calls or virtual video chat.
We encourage you to visit the Centers for Disease Control and Prevention website for additional information regarding COVID-19.
With regards (and washed hands),
Your neighbors at Love Your Hood
Source: the Colorado Real Estate Journal
The age old question, revisited: should I rent or should I buy? Here, the author presents statistics that illustrate Denver’s current preference of renting over buying. In the last 10 years, home prices have exceeded rental increases by 24%, requiring far less cash to execute a lease than to transfer a deed. But one thing to note: you don’t need to wait until you have 20% saved up to purchase a home — conventional home loans start with as little as 5% down! In fact, there are other loan products that can bring the down payment even lower.
Source: Tara Siegel Bernard of the New York Times
Throughout the US there are countless people who would love to buy a home, but continue to pay that rent check to their landlord every month instead. Why is this?
For the average aspiring homeowner, the largest obstacle to overcome is the down payment. Several companies, including San Francisco-based Unison, have found an opportunity in this challenge: shared equity.
Shared equity allows homeowners to split their down payment with an investor in exchange for a piece of the appreciation when the home sells.
How shared equity benefits homeowners:
- Increase buying power
- Retain some of your savings and buy a home
- Avoid costly private mortgage insurance and high interest rates
The average loan to value (the percentage borrowed to purchase a home) for a first-time homeowner is 92.6%. Homebuyers who borrow more than 80% of a home’s value upfront are seen as risky by lenders. Traditionally, they overcome this with unfavorable interest rates and mortgage insurance. Shared equity allows for buyers to afford a large enough downpayment to avoid these costs.
The downside? By sharing equity with a firm like Unison, a home buyer saves upfront but ends up giving up a cut of their proceeds from sale if their home has increased in value.
Regardless of whether you are the type to give up some of your equity to allow an outside investor to alleviate some of the capital-intensiveness of home buying, shared equity is catching on. Unison invested alongside 450 homebuyers last year, and they project to invest with roughly 2,500-3,000 more people in 2018.
Check out the full article to dig deeper into the mechanics of shared equity.
Buying a home can be one of the most exciting (and costly) purchases you will make during your lifetime. One of the most important steps in the process is determining how much you can afford. Yet, many people wait to secure financing until it is absolutely necessary. In a competitive housing market, having your financing in place before you start your home search gives you the ability to place an offer immediately after viewing the home of your dreams and making that offer stronger. It also allows you to focus on the more enjoyable decisions like choosing a neighborhood.
PRE-QUALIFICATION VS. PRE-APPROVAL
Pre-qualification and pre-approval are two common words thrown around in the mortgage industry. Pre-qualification is an unofficial estimate of how much you can borrow and repay for your home purchase. The amount lending institutions will pre-qualify you for is derived from the information you provide on your finances, credit history and income. Obtaining Pre-approval requires you to submit financial documents, such as tax returns, business licensing, and bank statements. Lenders will analyze the documents, run credit checks, and verify employment. The pre-approval process verifies you have the ability to repay the amount for which you are approved and carries more weight when you submit an offer to purchase a home. Although it takes more steps to obtain pre-approval, it verifies to the seller that you have the financing available to follow through with the purchase. (more…)