Tag Archives: dan tharp

Buy a Home for Your Parents With This Special Loan Program

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As a long-time Mortgage lender in Sacramento, I have used this relatively unknown loan program to help my clients purchase new homes for their parents while avoiding the more stringent rules and higher rates that come with buying an investment property.

It is not uncommon that I get that call from a concerned client, trying to figure out how to help their parents move closer to them, so they can spend more time with the grandkids, or worse case they need emergency help. The challenge of long-distance caregiving can be a significant drain on the family, and this program may be the answer.

Unfortunately, purchasing a second home or investment property often means you need to put up a much larger down payment than you would for a primary residence, and the interest rate might be higher. The benefit of this Family Opportunity Mortgage is that even if you currently own a primary residence, the new loan is subject to the same guidelines and rates as an owner-occupied home! If your parents don’t have sufficient income or cannot work and wouldn’t qualify for a mortgage on their own, this could be the program you could use to help them.

This unique mortgage offers several benefits over traditional second home mortgages. First, no occupancy requirements – For second homes, typical rules require the borrower to occupy the home for some part of the year. There is no such requirement for this type of mortgage however, the parents must live in the property as their primary residence.

Secondly, there are no distance requirements – Some underwriters may require that a second home not be located near your primary residence. This rule has softened, but the underwriter would ask for a strong case of why this home should be considered a 2nd home under standard underwriting guidelines. But thankfully, with this program, there are no distance requirements! The home could be located right next to yours or in a different town; it’s still priced and underwritten as a primary residence, allowing you to secure a home for your parents at a lower cost.

Not all lenders offer this program, so be sure to ask your lender if this is available or give me a call anytime. We can cover this in more detail to see if you are eligible for this unique program.

The above information is for educational purposes only. All data, loan programs, and interest rates are subject to change without notice. All loans are subject to underwriter approval. Terms, conditions, and eligibility requirements apply. Always consult an accountant or tax advisor for complete eligibility requirements on tax deduction.

Home values are up. Can you still afford to buy?

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Home prices in California are going up and will probably continue to do so. Does that mean they are less affordable?

The news can be misleading and confusing as it recently touted the significant move higher in the median home price, currently up 15% nationally versus last year. And 14.3% in Sacramento County, says the Sacramento Association of Realtors. 15% sounds awfully high. But the median home price does not measure appreciation. Instead, it marks the middle price point of recent home sales. 

With a substantial lack of inventory for lower-priced homes, more transactions occur for higher-priced homes, which pushes the median home price higher.

The actual Sacramento home price appreciation rate was about 1.25% for the last quarter, or 5% annualized. And it is forecasted to increase by a similar margin next year. So have you been priced out of the market?

The short answer is no, or at least not yet. California’s affordability factor has improved year over year because mortgage rates are down by almost a full percent, and incomes have gone up (Avg. weekly net pay is up 5.7% year over year nationally). Also, remember, only a portion of your income goes towards paying your mortgage. A 5% rise in income can offset a much more significant percentage rise in housing expense.

Let’s assume your monthly earnings did not improve from last year. Consider a buyer’s max purchase price of a new home, based on his/her income and debt was $450,000 last year. Maybe this buyer decided to wait because they were nervous about the market. Now, that home is worth about $472,500.

As a mortgage professional, if I were to use the same income and debt structure I used last year, this buyer would now afford a home for $490,000. This tells us that homes are actually more affordable, even though they have appreciated.

Granted, I am using very simple math here, and this does not get into down payment or cash required to purchase this home but is purely to show you the media doesn’t’ always get it right. Take the time to work through these numbers with a mortgage professional you trust, and don’t give up your dream of homeownership!

Coronavirus and Rates

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As a mortgage professional for almost two decades, I have been through many wild rides, but nothing compares to what we are experiencing right now with this coronavirus; or what I am calling our alternative universe. Just over a week ago, the fear of COVID-19 sent stocks tumbling, and mortgage rates lower – according to Mortgage News Daily, the average rate for the popular 30-year fixed mortgage fell to 3.23%, an 8-year low.

Rates had been dropping for weeks as “breaking news” seemed to ping our phones by the minute, and fear began to manifest in real-time, as we watched the stock market cradle. In times of economic uncertainty, mortgage rates are typically the beneficiary of bad news, and rates go down as dollars move from the risky stock market and into the “usually” safe haven of mortgage-backed securities (aka mortgage debt) – and rates go lower.

As news of the virus drove interest rates down, homeowners rushed to apply for mortgages not seen in over a decade. According to the Mortgage Bankers Association, during the first week of March, refinancing applications reached their highest levels in over 11 years and jumped 79% week over week. We all went from being plain old busy to our hair catching on fire. That’s when the damn broke, almost at once, as Banks quickly began to increase rates to stem the demand. More factors contributed to mortgage rates spiking, and I will cover those in future blogs — no need to get too far in the weeds here.

In what seemed like a matter of hours, those attractive low-interest rates vanished in a poof of air, and rates shot up – and fast! According to Mortgage News Daily, that average rate is now over 4%, and we don’t know how high it may go.

The Fed Didn’t Drop Rates?

Most had not heard the news that rates had jumped when the Fed made a dramatic announcement that they were going to lower the Fed funds rate to almost zero. Within minutes my cell phone exploded with calls and text messages from clients “Dan, did you hear the news? The Fed is lowering rates to zero, and I want it!“ Unfortunately, I had to tell them it doesn’t work that way.

The Fed Funds Rate is the overnight rate at which banks borrow money from each other; it is not, however, the mortgage rate. Mortgage rates are influenced by the U.S. and global economies and the demand (or lack thereof) of mortgage-backed securities (MBS) that are bought and sold on Wall Street. In short, MBS represents the prices investors are willing to pay for these low risk, low rate, fixed investments. More demand drives interest rates lower, and less demand drives them higher. 

So to be clear, the Fed can’t just announce they are lowering mortgage rates by dropping the federal funds rate. But, by making these incremental moves, they can help influence mortgage rates to drop – or in this case not to go too much higher!

What is Quantitative Easing, and why do we want it?

Now that we all know Fed rate cuts don’t always lead to lower rates, there are a few other tricks the Fed has up her sleeve to help us. One method that paid huge dividends during the crash of 2008 is Quantitative Easing (QE), which is “the introduction of new money into the money supply by a central bank. 

In laymen’s terms, if the guys on Wall Street and investors won’t purchase Mortgage bonds or treasuries, the government can step in and fill that void. Thus, keeping the demand for MBS going, which in turn keeps mortgage rates low. And if rates stay low, it will promote consumer spending (and borrowing) and keep our economy humming. The Fed’s goal to push rates down using QE may work again, as it did when they purchased billions in bonds and securities over many years following The Great Recession.

What is happening today reminds me of just how fragile and reversible progress can be. And unfortunately, as a society, we sometimes have this terrible habit of repeating mistakes we made years ago. This is why it is so essential to work with people you trust and who have the experience to guide you through the steps of homeownership and finance. I am hopeful this move by the Fed will pay dividends, just as it did before, and we can all continue to realize the dream of homeownership. Be safe, everyone. 

ALERT! 3 Mortgage Scams to Watch Out For (And How to Avoid Them)

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As if homeowners in Sacramento who are facing foreclosure don’t have enough to worry about, a multitude of loan modification scam artists have invaded the internet, public files and even foreclosure notices in newspapers in hopes of targeting their next victim. By identifying the top three modification scams and learning how to avoid them, at-risk homeowners can protect themselves (and their homes). Continue reading →

A 2-Minute Guide To Flood Insurance: Do You Really Need it?

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You’ve got house insurance, and assume your property is covered for any type of detrimental occurrence that can possibly take place.

However, not all homeowners in Sacramento are aware that home insurance policies don’t necessarily cover damage related to a flood, as the risks are too great. As a result, homeowners must purchase flood insurance through a private company.

Floods are one of the most common hazards in the US, costing billions of dollars in damage to properties every year. And more importantly, if you are in the process of shopping for a new home in Sacramento or anywhere in California for that matter, budgeting that monthly payment, its good to know if flood insurance will be required. Continue reading →