The Accunet Mortgage Show (9/06/2020) Episode

In this week’s episode, Brian and David talk about assets coming in, cash going out, and home sales numbers going up.

This week’s highlights:

  • Brian weighs the pros and cons of liquid assets and investment accounts
  • David lists the ways you can finance home improvement projects
  • Brian reports the August 2020 home sales numbers

An extra, extra account

This week, Brian told the story of a long-time client who was ready to purchase a second home in Florida. This client was retired and did well in his career – so well, in fact, that Accunet could qualify him for his loan just on his dividend and interest income.

Generally, the lending technique for helping retired people to buy homes is taking money out of their IRA, and a borrower must show verified assets and must verify the money to be used for their downpayment.

Brian’s client had assets totaling over $4 million dollars! During the process, underwriting saw a $58,000 deposit going into the account here, a $20,000 deposit going into the account there, and suddenly, more than 50% of the buyer’s monthly qualifying income had arrived from another account that Accunet had not  even initially documented (an extra, extra account!)

Brian called this scenario “ridiculous” from the perspective of the lender- obviously, this buyer had “quite enough” money, but -as Brian pointed out – in this COVID economy lenders must prove that borrowers have the necessary money in liquid type assets (i.e. this buyer has to move the money from his investment to checking account.)

Pre-COVID, Fannie and Freddie were telling lenders, “If you can verify an asset account that has 120% of the funds needed for a home, stop!- You don’t have to do anything more and the money will arrive; no need to liquidate.”
However, that qualifier got tossed out in March with the stocks dropping.

As Brian said, modern mortgage lending is all about manufacturing specifications, regardless of your income or assets.

    Want help verifiying your assets for a second mortgage? Schedule a free consultation.

    With a greater risk comes a higher rate

    Next, Brian told the story of his client who did a regular home refinance at a 3.25% rate on a 30-year-fixed mortgage pre-COVID. However, this client has (obviously) been spending a lot of time at home, and has decided to put in a pool as a new way to enjoy her house.

    So, David asks, what are the ways you can pay for that pool, assuming the client has a ~$250,000 loan balance?
    (Note: the pool installation will cost around $85,000, including all of the hardscaping, fencing, gazebo, etc.)

    1.) Cash– easy, but not always on hand

    2.) A home equity line of credit, which can be as low as 1.25%, but will always revert to the prime rate at 3.25%

    3.) A fixed-rate home equity loan, but, since these are second-seat to home equity lines of credit, the rate is higher

    4.) A cash-out refinance, but due to COVID uncertainty, not all lenders are offering fixed rate cash-out refinances right now since the lender can get stuck with them if the buyer goes into forbearance.

    As always, Brian points out, with a greater risk comes a higher rate, so his client would be paying upwards of $4,000 in costs to get the 2.99% current rate.
    At a 3.25% rate, she would pay around $1,600.
    And at 3.37%, all of her loan costs paid, because Fannie and Freddie will pay more for a higher loan. Since the rate went up, Fannie and Freddie allow for the extra money to be used for loan costs.

    August Home Sales

    Lastly, Brian detailed the August Multiple Listing Service Report.

    Compared to August 2019, this past month saw:

    • 58 more single-family home sales and condo sales across 5 counties in Southeastern Wisconsin.

    • The median sales price for these homes and condos was $275,000 – up $33,000 from August 2019.

    • Listings were up by 59 units from August 2019, a 2.2% increase, but year-to-date, listings are short, at 16,020 fewer than last year, and in these times of low rates, inventory continues to be the issue.

    RedFin Real Estate reported that nationwide, 55% of listed homes faced a bidding war (meaning one or more offer) in August 2020, and the hottest markets in metro areas were:
    San Francisco, Salt Lake City (where 2/3rd of all listed homes had a bidding war), San Diego, and Minneapolis.