All Forum Posts by: Zach Wain

If you are able to move into the home, you can do this over and over each year. You only have to occupy the home for 1 year. Each time you get primary home interest rates and low downpayment options like 5% down. That is by far the best and cheapest way to add RE. Otherwise, you can still buy with 20% or even 15% on a rental home or second home, the rates are the same for conventional loans. Main difference is PMI and min downapyment for a conventional 2nd home is 10%, rental is 15%. Both will have high rates/fees until you get to 25% down

For all the BRRRR folks that use conventional loans for your refinance, there are new rate/pricing adjustments from Fannie Mae and Freddie Mac that are going into effect on 5/1/23 that are making cash out refinances more expensive/higher rates. If you happen to be in a high cost area where we have super conforming loan sizes (San Diego, Los Angeles, San Fran, etc) - cash out refinance on those loan sizes are getting really nasty. Just a heads up, cash out refinances will look normal at 60% loan to value. 70% loan to value with 780+ credit scores its a little worse, but not terrible. But 80% cash out rental property refinances are going to be really ugly.

Maybe Non QM loans will fill that space.  If there is a need, there is usually another option that will present itself.  But, Non QM comes with already higher rates/fees, etc.

The Federal Housing Finance Agency, FHFA, the governing body that controls the conventional loan world.  Think of them as the parent of Fannie Mae and Freddie Mac.  They have set multiple new pricing grids for all conventional loans, and these pricing grids directly impact mortgage rates.  This is effective on all loans purchased by 5/1/23, so lenders may start implementing this in March or April.  FHFA changed the entire pricing grid, so while there are many many changes, here are some of larger highlights.  This only applies to conventional loans.

First, No significant pricing changes to:

1) Purchase/non cash out investment home or second home pricing

2) Purchase/non cash out Condo's

3) Purchase/non cash out of Manufactured homes

4) Subordinate financing hits (when you have a 1st and 2nd mortgage at the same time, there is price hit on the first mortgage)

Next, some of the larger changes to pricing:

1) Worse - Cash out got WAY WAY more expensive, especially over 70% loan to value and especially if your credit score is under 780.  For example, a cash out refi to 80% loan to value with a 680 credit score is going to be brutal...

2) Worse - High balance/super conforming loan sizes - got more expensive. Especially for ARM's and cash out. Like really crazy expensive. (this does not make sense to me, because these are high cost areas to live in, so they get a higher max loan size to stay conventional. These are not the uber wealthy, but they are getting hit big time now)

3) Worse - Your average borrower with a 720-759 credit score is paying more now

4) Worse - If your debt to income ratio is over 40%, you pay more now (silly rule, if we pre approve someone at 39% DTI but the underwriter changes it to 40%, now that borrower pays more.)

5) Better - 2-4 unit homes, pricing is a touch better now.  That is nice for investors.

6) Better -  borrower with a 620-699 credit score is paying less 

7) Better - 1st time home buyers within the area median income of their county get a better deal now (this went into effect a couple months ago)

There are a lot more small changes in these pricing grids, but overall I interpret this as the FHFA saying they want to make loans more expensive for anyone that has a home already or lives in a high cost area.  They want it to be more affordable for 1st time home buyers.  By looking at the numbers, I am also assuming that they want to improve the reserves of Fannie Mae and Freddie Mac so they can be in position to one day be independent of the Federal Government and end their Sponsored entity status.  That is just my personal opinion based on the recent moves...

@Charles Stubblebine a 1st mortgage paired with a HELOC will be the only option I am aware of. We have that combination that can you get to 90% Combined loan to value.

Without W2 income and only 1 rental property, you will either need a good amount of assets in your Trust's name (a living trust with $$$ cures all problems) or be 59.5+ yrs old with money in an IRA account. If that is not the scenario, a DSCR loan is the most likely option.

I agree and I think CPI by summer flips to 2% or even sub 2% and really surprises people.  PCE is tougher to predict since they rely a little less on housing metrics.  

@Brian F. - I would recommend you get your team together. Get your CPA in place, get your lender in place, get your realtor. On the lending side, if you have a free and clear home you have multiple options on how to leverage that properly. HELOC rates are rather high, but give you flexibility if you want to take your time and are not sure when you want to buy your next home. A conventional first mortgage will likely be the lowest rate/price structure, but there a lot of details to figure out. Do you live in the home currently, is it 100% rented out, etc.

Assemble your team and start game planning!

Hello BP'ers,

Today, another monthly inflation report came out, the nations December CPI.  Consumer Price Index.  Headline (total) inflation was negative, -0.1% M/M, which is a great thing to see.  Mostly driven down by food and energy prices.  Core CPI, which removes volatile food and energy was up 0.3%.  This is watched more closely by the Fed than headline CPI.  0.3% is a touch high, but 0.1%-0.2% M/M is what the Fed wants to see on avg, so overall, not bad.  Here is the real kicker, Shelter costs, which is about 32% of the entire CPI report was up 0.8% M/M.  It sounds crazy, but this was expected.  The metrics used by the US Bureau of labor statistics to measure housing/shelter costs is Bananas!  It lags real time data by 6-12 months.  But, this is the system that is place.

OER, Owners Equivalent Rent survey is a very lagging way to assess our housing costs, and that is 24% of the 32% of the Shelter component.  The other 8% is an actual rent survey, but its still measured in a Y/Y lease comparison so even that lags as well.

The Good news, is that in 3-9 months its likely that the Shelter component will finally flip to negative (even if home prices start leveling off and/or start moving higher).  My opinion, is that in Q3 the Y/Y CPI numbers will be sub 2%.  That is a bold prediction and most economists think 3.5%-4.5% range.  But, I think we will hit negative shelter costs, along with most other prices continuing to come down.  This assumes the supply side continues to open up and China does not shut down, or other curveballs cause supply issues.  The Avian flu is not helping egg prices right now for example.

For example, the past 3 months Core CPI minus Shelter is -1.0%.  If that trend continues and shelter costs start to flip to neutral or negative, we might get a nice surprise.  When inflation comes down, so do mortgage rates.  Q2/Q3 I think mortgage rates continue a slow trend lower.  I also think the Fed wants to fight mortgage rates from dropping too low because they do not want to stoke the housing market again.  Anything below 4.5% for a con 30 yr fixed and I expect the Fed to fight back, just a guess...  But since mortgage rates have 1%-1.5% to fall before that happens, we have some leeway.

It depends on your pay structure. If its the same every 2 weeks and stable, easy... If the pay is variable, than 12 months min is pretty normal. You can not do a DSCR loan unless you own a primary home, so that may not work. Without seeing your pay stubs its hard to say, but it can be a road block.

Salary = win!  Hourly at 40 hrs per week = win!  Variable pay can be tough

Also, in most states, it is extremely easy to close a loan in your personal name and than immediately move title into your LLC name. Conventional loans actually allow this as long as you are the majority owner of the LLC.