What is the best / worst time to buy or sell a home?

Minneapolis, MN: As a Mortgage Loan Officer for well over 20-years, I get asked on a pretty regular basis about what is the best time of year to buy or sell a home. As many buyers are also sellers, it also makes sense the question can be changed into what is the worst time to buy or sell a home?

My general answer is the best time to sell a home is simply when you need to, and the best time to buy a home is also when you need to.

But if you’ve got time on your side, the following statistics apply to the seasonal trends in real estate for properties here in Minnesota, Wisconsin, and South Dakota, where I lend.

Best time to sell a home, best time to buy a home
Best Time to Sell a Home
Worst Time to Buy a Home

BEST MONTH TO SELL A HOME

April is historically the best month to sell a home in these area. This is the month where you will generally get top dollar as the most buyers are in the market, and willing to pay to get what they want.

As more homes come on the market from the winter sales lows, we see a steady rise in sales prices as we move into February, and March, hitting the peak sales price in April.

May and June drop a little from Aprils peak, but then we see a steady drop each month as we move towards winter.

BEST MONTH TO BUY A HOME

Want to pay the lowest for a home? Buy in November or December.

This is the slowest sales time of the year. The smallest numbers of homes are on the market, and the smallest number of buyers are in the market. This works on your behalf, as sellers tend to start lower, and are more willing to negotiate price.

Starting in July, we see a noticeable drop in the number of active buyers, and homes stay on the market a bit longer. January is the first month that changes the trend, but it really starts moving up in February. I generally see a huge sure in Mortgage Loan Pre-Approvals starting around February 1st.

WHY THE TRENDS?

There are all sorts of reasons for these yearly trends. Here are just a few:

November and December have the holidays. Thanksgiving dinners, and Christmas trees are great family times, but are not so much fun for sellers to have strangers coming through your house. Holiday’s also have so many other things going on, that buyers find it hard to find time to look at homes.

In the winder months, it’s cold outside. Homes and yards are covered in snow. Not so fun house shopping, unless you absolutely need to.

Spring brings people out in droves as the snow melts, and the weather warms, but increased sales has a lot more to do with kids. No one likes changing schools mid-year, so the big push is on this time of year to buy or sell to coordinate with the school year.

July and August fall off, as those are usually busy summer vacation months.

REAL DOLLARS vs MYTH

While these trends can be interesting and can work to your advantage, I still default to the statement that you should simply buy or sell a home when you need to, and not hold out for seasonal trends. Statistics for the Minneapolis / St Paul area in 2018 show on an average $300,000 home had a swing of just $10,241 from a transaction in April versus a transaction in December.


Looking to get Pre-Approved for financing that new dream home? It only takes 10-15 minutes to apply online right now. All the information needed to apply is in your head.

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Fed’s raise interest rates again

Minneapolis, MN: The Federal Reserve raised the Fed Funds Rate today for the fourth time this year, bringing the rate to a target range of 2.25% to 2.50%. This is commonly known simply as a Fed Rate Hike

What is the Fed Funds Rate?

The Fed Funds Rate is only a small portion of what makes up your overall interest rate, and may other things factor in, including the stock market, and global issues, like trade with China and geopolitical problems across the world. For example, 30-yr rates have moved up and down within about a 0.375% range in the past two months.

Fed Raises Fed Funds Rate
Mortgage interest rates increase

So How Does A Fed Interest Rate Hike Impact You on a Mortgage Loan?

For the short-term, those looking for standard loans, like a 30-year fixed really won’t be impacted, as what the Federal reserve does only has a partial effect on these rates.  It would take a noticeable increase in inflation to impact loan-term rates.

Adjustable rate mortgage loans, and home equity loans tied to the prime rate on the other hand should immediately rise. If you have an adjustable loan, with a change due soon, expect that to rise. 

It may be a good idea to refinance those adjustable mortgage loans today. Contact us to discuss your options at (651) 552-3681. For example, if you did a 5-year fixed/adjustable loan 5-years ago, it is going to be going up.  How far depends on many variable based on how the original loan was done, but it may be time to lock in something fixed.

Long-term Mortgage Rates Are Still Historically Low

Looking to buy a home in the near future?  You can still get some awesome rates from a historical picture.  Sure, they are a bit higher than the middle 3’s from a couple of years ago, but pretty attractive compared to the 16% fixed rate I received on my first time home buyer loan back in 1981.

Mortgage Interest Rate Prediction
No one can predict interest rates, but the trend is currently not your friend.

My only suggestion is that as the economy continues to improve, the long-term trend is not your friend. We expect rates to slowly continue creeping up throughout 2019 and beyond. So if you were thinking of buying a home, better sooner than later.

Mortgage application
Secure New Home Purchase or Refinance Application. Apply Today, Know Today.


The Truth about Mortgage Closing Guarantees – Don’t be fooled.

Minneapolis, MN:  We are starting to see them pop up everywhere, mortgage companies,  mortgage brokers, and lenders, making these great sounding mortgage closing guarantees, where they make claims of paying $500, $5,000, or ever $10,000 guaranteed if they don’t close your loan, or if they don’t close on time.

These offers vary from lender to lender, but the basics are the same. Claiming to pay someone if something happens. Some claim to pay the seller if the deals falls apart. Some claim to pay the Realtor, some claim to pay the buyer, some claim to make your first house payment.

Guaranteed Closing Offers

Wow…  Amazing, Awesome.

Or is it?

As with so much in life, it is probably smart to look at these claims and offers with a bit of a skeptical eye. So let’s us take a look at what they are all about.

The first thing to ask is if they are real, with the answer generally being yes, but with the caveat that there is so much small print, that they can make these claims, because they never ever expect to pay them! 

The reality is these guarantees are nothing but marketing ploys to get you to select one lender over another, and most of them come with a price.

The Loop Holes

These claims are incredibly low risk for the lender because in order to offer them, they simply do a complete loan underwrite of your application, except for the appraisal report, and title commitment, both of which can’t be done until after you’ve made a successful offer to purchase.

All of the guarantees have so many loop holes, time parameters, and requirements, that no lender ever expects to pay.  For example, common items are things like; you must find a home within 30-days, or you must close within 60-days. You may no go over your pre-approved purchase price, or monthly payment. No material changes to your application allowed; like changing jobs, or changes to credit score. Basically no changes to anything. They will also say the purchase agreement must be OK, the appraisal must be OK, and that the title search must be acceptable.

They also say they won’t pay if you don’t provide documents in a timely manner, fail to sign documents and disclosures in a timely fashion, fail to disclosure information, and a litany of other reasons.

Many of these offers also come with loan program or property type exceptions. You’ll see things like no FHA Loans, no USDA loans, reverse loans, first time home buyers with down payment assistance, or refinances. You’ll see restrictions of no short-sales, no foreclosure properties, no brokered loans, and even no jumbo mortgage loans.

Oh, and don’t forget third parties too… For example, lenders have no control over appraisers, so if the appraisal takes too long, there is a loop hole for that too.

Restrictions apply covers ever single possible reason a loan would not close, or not close on time, essentially rendering the guarantee worthless. Yup, the small print matters.

The Guarantees Negatives

OK, but what is wrong with the claims? 

Nothing, but gimmicks are gimmicks. Just because they make a guarantee claim, does this make them the best interest rate? How about the lowest closing costs? Does this mean you are getting the best loan? Does this mean the Loan Officer is experienced?

Paying a higher interest rate, or higher closing costs, and especially being put into the wrong wrong program by an inexperienced Loan officer in not exactly smart in exchange for a fluffy offer that will never be paid if something were to go wrong.

The sad reality is lenders know most people fall for gimmicks, and never read the small print. They use that as a tool to make more money with higher rates and costs. Sad… 🙁

For Real Estate Agents, there is a down side too

I was recently at lunch with an agent who advised their client to accept the offer from buyer who was using a company with one of these offers, making note that if the transaction fell apart, they were guaranteed $5,000.

When that deal actually did fall apart, and the lender refused to pay because of some of the aforementioned loops holes, the seller fired the agent because the agent talked highly about the guarantee.  Oops.

Two Types of Mortgage Pre-Approval

Fast and pretty good, or slow but super accurate?  It’s your choice.

In order to offer these guarantees, the lender offering it must do a full and complete underwriter reviewed loan approval. This means you must complete a full application, submit all your paperwork, meet any and all additional conditions, plus wait for job and IRS tax return verification’s to come back.

Mortgage Loan Paperwork
Mortgage Loan Paperwork

This means the typical person will have to wait roughly two to three weeks or longer after loan application before being issues a Pre-Approval Letter. This assumes the person submits all their requested documents quickly, and the lender gets their job verifications, IRS verifications and more back quickly,

While there is nothing wrong with this, and it is actually the better way to go, it can cause real issues if you fall in love with a home before the pre-approval is ready, or you are otherwise trying to make a quick offer. The home can be long gone while you wait for the Pre-approval.

Historically, most home buyers situation are pretty straight forward, so a basic traditional Pre-approval can be very quick. Walking into my office and leaving with a Pre-Approval Letter is common. This faster pre-approval is still by far the most common way lenders do pre-approvals.

We here at Mortgages Unlimited offer both the fast basic Pre-Approval, and the slower full Underwriter Pre-Approval.  Your choice…

The Bottom Line

The bottom line is feel free to pick whatever lender you want to work with, but don’t pick them just because of marketing gimmicks, and worthless guarantee – especially as they usually come with higher costs.

 


Why smart mortgage shoppers don’t get burned, and other do.

Minneapolis, MN: I get it. You are buying a new home, or refinancing your existing home mortgage, and are looking for the best mortgage interest rate. But buyer beware, the internet is full of places to avoid.  So here I’ll give a little primer on the process, along with some common lender games, and show you why smart mortgage shoppers don’t get burned, and other do.

BASICS OF MORTGAGE LOANS

The most important shopping tool is to understand how the mortgages work, from mortgage interest rates to closing costs.

UNDERWRITING GUIDELINES

First, we all underwrite to the same guidelines. FHA loans are FHA loans, VA loans are VA loans, and conforming conventional fixed rate loans are conforming fixed rate loans regardless of where you get the loan. So one lender over the next is meaningless in terms of the vast majority of loan approvals.  Conforming conventional loan means the loan is underwritten to Fannie Mae or Freddie Mac guidelines. Conventional loan just means it is not a government backed loan.

So technically all lenders are equal – but they are not. There is something known as individual lender overlays. This is where some lenders add they own additional rules to the standard guidelines. The most common overlay is a credit score overlay. For example, FHA rules say lenders can offer the small 3.50% down payment of an FHA loan all the way down to a 580 credit score, but because of risk, many lenders will not go below a 620 credit score. So if you are a weak 585 credit score FHA loan client, one lender over another may make a difference.

MORTGAGE INTEREST RATES

Lenders don’t just make up interest rates. Calling around to a lot is just a waste of time, when shopping just a few is all that is needed to give you an idea of where the real rate market is currently at.

low mortgage interest rates

Mortgage interest rates are determined by one item, the mortgage backed security market. All lenders base daily rates off the exact same MBS bond market on the same day at the same time. If my rates go up, so does everyone else. If my rates go down, so does everyone else.  There are many factors that go into determining how the mortgage backed securities move everyday. I’ll save that for a different article.

Just understand that essentially this means we all pay the same wholesale rate for the money, and the only real difference is the margins needed by different lenders.

LENDER MARGINS

So if all lenders start at the same point, its all about the margins.  As one can expect, this means the most lean and mean company needs smaller margins, and therefore passes along the best real interest rates to consumers and still maintain a sustainable profit margin.

Fat companies, with too many layers of management, too much brick and mortar buildings to pay for, expensive all day everyday advertising, and even stadium naming rights all have to be paid for. The only way they can do that is to have higher margins, and those higher margins translate into higher mortgage interest rates for consumers.

LOAN CLOSING COSTS

This is another area of huge consumer confusion. ALL LENDERS essentially have the exact same closing costs!  How mortgage lenders, banks, and mortgage brokers present that to you can vary greatly, leading to consumer confusion.Real estate

First part of understanding closing costs is understanding the biggest percentage of closing costs are not even the lender, but rather all the other parties involved.  Appraiser, credit bureau, title companies, state taxes, county recording fees, pro-rated property taxes, home owners insurance, and more.

The actual lenders have costs too, which generally are loan origination, processing, and underwriting costs.

HIDING COSTS

If you’ve done any mortgage shopping whatsoever, you’ve gotten plenty of different interest rate and closing costs quotes. When one lender has significantly high or lower rates, or higher or lower closing costs – it generally is just about presentation.

The lower the interest rate, the higher the closing cost. The lower the closing cost, the higher the interest rate.

A common difference is many lenders will quote a rate based on you paying all normal closing costs, plus the industry standard 1% loan origination fee. Many other lenders quote without charging a loan origination fee, giving the appearance of lower closing costs. Some going as far as making silly claims, like they don’t charge that, or they will waive it “just for you.”

But deep think about that. Loan origination goes to the lender to cover the cost of originating the loan, from Loan Officers, and a significant amount of back office staff, to rent, phones, and more.  So you think they are working for free?  Of course not.

Here is how it actually works.

On most days, paying or not paying loan origination up-front equates into a 1/4% rate difference on a conforming fixed rate loan. This can vary depending on the market, but holds true most days.

Assume this two different quote example:

Lender A) A quote of a 5% interest rate on a $200,000 loan, with 1% loan origination ($2,000).

Lender B) A quote of a 5.25% interest rate on a $200,000 loan, with no origination (appears to be a $2,000 savings, but rate is higher).

Neither one of those quotes are automatically good or bad. They are just options.

If you have the up-front money today, and you are going to be in the home a long time, paying loan origination and obtaining a lower interest rate is smart. On the other hand, if you are tight on cash today, opting for lower out-of-pocket costs today by taking the slightly higher interest rate may be a good option.

I always explain these rate and cost options to my clients, but I know many mortgage companies, mortgage brokers, and banks don’t. It’s your loan, your money, your payments… You pick what is best for you – but you have to know there are options.

MORTGAGE SHOPPING TIPS TO AVOID BEING FOOLED

The first tip is education.  Reading this article has already made you smarter than most when shopping for a mortgage loan.

The rest of the tips include only using someone local. There is nothing on the internet you can’t get from the person down the street.

Avoid big banks and big internet companies with lots of overhead.

Statistically, using your local mortgage broker will always get you the best deals.

SCAM QUOTE EXAMPLES

While it is better today that it was years 15-years ago, the market is still ripe with slight of hand quoting.  I’ll give two recent example I’ve run across.

Example 1) Client was shopping standard 30-year fixed rates. Client was quoted an interest rate a full 1/2% lower than my fixed rate quote, along with no loan origination costs. Knowing that was completely impossible, but digging deeper, we discovered the other lender was actually offering a 5-year adjustable loan, but he kept saying “it’s a 30-year loan.”  Clients mind kept hearing 30-yr fixed, when it clearly wasn’t!

Example 2) A well know big internet lenders who is pretty Quick, and has Rockets. Client was looking on their web site at posted interest rates, which looked competitive to mine. Being down this road many times before, I had the client go back to their web site, but this time scroll down to the rate disclaimers. Here I showed him that while they showed the same physical interest rate, it clearly showed that to get that rate from them assumed a 75% loan-to-value loan (25% down), and would cost an additional 2.125% in points.  Each point is 1% of the loan amount.  So with the “same” mortgage interest rate, their closing costs were 2.125% HIGHER than mine.

DON’T GET BURNED BY THE SMALL PRINT!

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We lend in Minnesota, Wisconsin, and South Dakota – and we’d love to be your lender.  Call (651) 552-3681, or just apply online at https://joemetzler.com/application.  NMLS274132. Not an offer to enter into an interest rate lock agreement.  Not everyone will qualify. Equal Housing Lender.