Fannie Mae was sued back in 2016 under allegations of fair housing violations, and the organization decided to settle in February of this year. The settlement amount was $53 million. Fannie Mae had acquired a large number of properties in the wake of the subprime mortgage crisis, and thus became responsible for their maintenance until they were sold. But fair housing organizations started to notice a trend: only the ones in predominantly white neighborhoods were being adequately maintained.
The settlement agreement was the first to determine that foreclosed properties, like the ones Fannie Mae holds, are also subject to fair housing laws. This was not officially determined prior. Also, it’s possible that they were in worse conditions to begin with, but that doesn’t absolve Fannie Mae of their responsibilities. Their argument was that their intentions were not discriminatory. Perhaps they simply were not able to maintain the homes as well since they were in worse shape. But they were unable to reject the claim that regardless of their intentions, the impact was obvious. This is what led to Fannie Mae needing to settle.
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With mortgage rates on the rise, more and more buyers are struggling to obtain loans. Given this, an infrequently-used financing option is starting to make a comeback. Seller financing is an process in which the seller of a property offers to carry the mortgage, and the buyer will then owe the seller rather than a lender. This doesn’t have the same stringent requirements that mortgage loan approval has, so it’s much more accessible to buyers.
Seller financing tends to be attractive to buyers. Not only is it more accessible, but the interest rate is usually lower. It also doesn’t incur any fees such as loan origination fees. But why would a seller want to do this? Well, there are a couple reasons. Firstly, because seller financing is so attractive to buyers, it can improve the property’s marketability. There’s an additional benefit, though. It allows the seller to defer part of the taxes on sale profits. The seller only pays taxes on the principal as it is received. At the time of sale, they pay taxes on only the amount the buyer paid. This can include the down payment and any partial loans the buyer received.
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The California Housing Finance Agency (CalHFA) has introduced a new loan program called the Forgivable Equity Builder Loan. It comes with some heavy restrictions — only first-time homebuyers are eligible, and it only covers up to 10% of the purchase price. This is because it’s a supplementary loan that can only be taken out in combination with a CalFHA first mortgage. The good news is that this loan has an interest rate of zero percent, and is also forgivable if you occupy the residence continually for five years. However, standard interest rates apply to the CalFHA first mortgage.
The program also requires borrowers to complete a course on homebuyer education and obtain a certificate of completion. This course does require a one-time fee of $99 if taken online, or a variable-rate fee if taken in person. You must also occupy the new home as your primary residence, as well as meet income requirements. The property must be a single-family residence or manufactured home. This can include condominiums if they meet the requirements for the CalFHA first mortgage, or ADUs in some cases.
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You can find advice for prospective home buyers all over the internet — including, of course, in our articles. But who knows better than the buyers themselves what they’re having trouble with? For over half of survey respondents, 56% to be exact, the biggest problem is finding the right property. This is probably partially the current market, with very low inventory, and partially buyers not knowing what or where they can afford to buy.
This isn’t one of the categories buyers mention, though. For nearly a third of respondents, the most difficult part is understanding the process and paperwork involved. 20% cite primarily monetary issues, either with saving for a down payment or getting a loan. Comparatively few, only 7%, believe that COVID-19 was a significant complication. Meanwhile, 18% of respondents don’t think the process of buying a home is difficult at all.
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Many homebuyers aren’t sure what to do when a home they want to make an offer on is in pending status. If you really want the home, the best thing to do is to make a backup offer. If you submit an offer normally, the seller is still contractually obligated to honor the original offer if it doesn’t fall through, even if your offer is better. But don’t get your hopes up — most pending sales carry through to completion, since it merely means that the seller has accepted an offer.
What does it mean if the sale does fall through, though? In certain situations, this could be a red flag, but in others, the problem lies elsewhere. Sometimes the home inspection reveals issues that the buyer (and possibly the seller) wasn’t aware of, which could change your mind as well. The bank could decide to cancel an unapproved short sale, which could entail more legal complications than you want to deal with. Other times, the problem was with the buyer, perhaps not being able to acquire a loan. If the issue is with contingencies that have yet to be met, the home may be listed as contingent rather than pending.
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Home improvements have gotten more popular recently, as many people have switched to work-from-home and are spending more time there. Usually, these improvements are primarily made for the owner, rather than for a prospective buyer. These features would also be high in demand if you are planning to sell your home, but there are a few things that can actually increase the value of your home by much more than you spend.
You may be able to improve your energy efficiency by upgrading your windows, which is certainly value over time for a homeowner, but it’s also increased value for a home seller. Energy efficiency is a significant draw for buyers, and will improve the value by more than its cost, even if you aren’t reaping the rewards of it yourself. Kitchen remodels almost always pay for themselves. Homeowners spend a lot of time in their kitchen, and they want it to suit their needs. Figure out what people are looking for in a kitchen right now, and make it happen. A rather expensive upgrade is a stone veneer. You won’t recoup the entire cost if you sell immediately, but you’ll get back most of it. This is one that you’ll want to have accrue value over time.
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The primary purpose of refinancing is in order to spend less money in the long term. It may seem like this is a good idea whenever rates drop even the slightest amount. However, it’s important to remember that you are technically originating a loan when you refinance, and doing so incurs the same fees. The upfront costs are what deter repeated refinancing.
Most of the fees are a few hundred dollars — unless otherwise specified, you can estimate they will be about that much. Since you are applying for a mortgage loan when you refinance, this requires both a mortgage application fee and a loan origination fee. The numbers vary, but typically, the the loan origination fee is 1% of the loan’s value. You will also need your home to be re-appraised, as lenders want to know the value of your home before approving a loan, which will require an appraisal fee. It’s also possible that your lender will require a title search, and you may need new title insurance, both of which incur fees. Title insurance, if required, could be $1000 or more.
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The majority of homebuyers choose fixed-rate mortgages (FRMs) over adjustable-rate-mortgages (ARMs) in order to not have to deal with the uncertainty of changing interest rates. However, there’s very little uncertainty right now — interest rates are going up. This does include both FRMs and ARMs, but ARMs tend to have lower starting rates — a 5-year ARM was at 4.28% in mid-April. Buyers are predicting that even with an adjustable rate, their rate is not likely to surpass the 30-year fixed rate of 5.37% as of the end of April.
ARMs aren’t exactly popular, though. Even with their share doubling in the past three months, that’s still only 9% of mortgages. About as large a share of potential buyers are instead choosing to simply wait for a better time, with mortgage applications dropping by 8% and refinance applications dropping by 9%. Refinance applications are also drastically lower than the same time last year, having dropped a whopping 71%. New mortgage applications also dropped since last year, by a much more modest but still significant 17%.
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The usual effect of rising interest rates is a decrease in demand, as buyers would rather wait to lock in a lower rate. Decreased demand should then translate to lower prices, since sellers want to encourage buyers. Not so in the San Francisco Bay Area right now. Prices are still going up, and demand didn’t really go down all that much.
The culprit? A couple of factors. Most significantly, inventory is extremely low in the Bay Area. Buyers are encouraged to take opportunities where they can, since they don’t come up often. That often means paying less-than-ideal prices. Secondly, the Bay Area is generally a high-income area and already has high prices. Even with rising prices, most people able to purchase there aren’t going to be suddenly priced out. Those looking for a median-income or lower household aren’t looking in that area to begin with.
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We know that the wildly high post-lockdown demand was in large part driven by fear of missing out, or FOMO. People definitely took notice of the low interest rates and decided to take advantage of them. Interest rates are no longer low, and home purchasing demand has slowed. However, home renovations are still in high demand for just a bit longer. Renovating is not as expensive as buying, so homeowners with FOMO who could not afford to buy instead sought to remodel their current homes to better suit their needs.
In turn, though, home renovation costs have also increased rapidly in response to demand. By the last quarter of 2021, the year-over-year change in home remodeling costs had risen to 9.4%, about 2.5 times the expected 3.8% increase. Current projections have the Q3 2022 increase at an incredible 19.7%. But just like with rising home prices, increasing home remodeling costs will begin to price out even those affected by FOMO. Q3 is predicted to be the peak, with the prices starting to slow again by Q4 2022.
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