In this week’s episode, Brian and David talk about the slippery slope of home sales, crossing the bridge to a bridge loan, and safe borrowing on the home buying journey.
This week’s highlights:
- Housing trends took an interesting turn due to the uncertain COVID-19 economy
- Should you cross the bridge and apply for a bridge loan in these troubled times?
- If you’re self-employed, make sure you scrutinize your income when getting pre approved
Wisconsin’s housing market trends in a COVID-19 world
Fannie Mae’s chief economist, Doug Duncan, projects existing home sales will drop 15% for the remainder of 2020 due to repercussions from COVID-19.
This means 800,000 fewer home sales; though there is not an expected decline in prices, and refinancing should remain steady throughout the year thanks to the low rate environment. It is a matter of supply and demand, as the number of buyers who still have jobs exceed the number of sellers.
Speaking of the housing market, Brian has been tracking listings since March, and has noticed a trend in new listings changing by 15-day increments:
According to the Multiple Listing Service, in the first 15 days of March, the 5-County Milwaukee Metro area reported 10% more listings as compared to 2019; pre-quarantine March was good for buyers.
In the 2nd half of March, listings were at an 8% increase over 2019.
However, by the first 15 days of April, listings were down by 32%.
Keeping in mind that 19% of listings expire (people simply do not sell their house or agents relist them under a new MLS number to make their posting appear less stale), this drop reflects the general hesitation and uncertainty for home sales right now.
In a more uplifting snapshot, Wauwatosa currently has 32 active or delayed category listings currently in the $250-350,000 price range, of which 25 have offers!
What are my bridge loan options?
Brian and David reaffirm that, “Nobody wants to take an offer contingent on the sale of your existing home.” Sellers are hesitant to make deals with buyers who balance their offer on the assumption that their current home will be purchased.
Brian says that a buyer wanting to dodge this contingency can try for a “back door bridge loan,” wherein the buyer may take out a new (first) fixed-rate mortgage (up to 75% of the value of the new home) and simultaneously line up 15% on a second mortgage, borrowing up to 90% of the money for the home they want.
The buyer then has the choice to take the eventual proceeds of the sale of their existing home to pay down what was borrowed, and assuming the sale goes as planned, is left with an eventual 25% down payment.
Accunet can help borrowers size up a first mortgage to the amount they desire to keep long term; aka, a delayed down payment.
Using a back door bridge loan, a buyer can borrow against a life insurance policy or 401k as well.
As always, apply for a bridge loan carefully, as you may put yourself at risk in this situation of getting bought.
Safe borrowing during self-employment
Brian told the story of his friends in Waukesha who are looking to sell their current home and buy somewhere up north.
They expressed interest in getting a bridge loan and extracting equity to use as a down payment on their next house, though at the time of application they had the income to swing both houses.
However, within the last week or so, they called Brian saying they might change their minds, since they don’t want to be stuck owning two homes in this economy — especially since one of the buyers is self-employed.
The self-employed buyers is down in year-over-year revenue, and Brian lauded that it was a good thing they opted against the bridge loan, as it would count the self-employed/lower income. Brian scored them a rock-solid mortgage pre-approval using only the wife’s income as a teacher, just in case.
Brian reminds everyone that for the self-employed borrower wanting to purchase a home in a COVID-19 economy, you must verify your business is still open, and report any diminution of income within 10 days of closing, otherwise income might not be used.
The safest borrower to lend to right now is the retired borrower, as they don’t need to worry about job security.
If you are 62 years old or older Accunet can help you get a reverse mortgage or refinance without stipulations on your income or credit score.
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