Weekly Rate & Market Update 2-5-16
Question of the week: We are thinking of buying a vacation home, what is different than buying our primary home?
Answer: It’s more enjoyable?
There are a few differences in qualifying for a mortgage for a vacation, or as we in the biz call it a “second”, home and buying your primary residence, but not many.
Second home mortgages are considered to be owner-occupied and not investment properties for underwriting, as such most of the same guidelines apply. There are some guidelines however that are different (all guidelines below are for conforming loans, “jumbo” or non-conforming mortgages have different guidelines, call if considering):
- Maximum loan to value is 90%
- Property must be geographically distant from primary residence, or “make sense” that it will be a second home
- Some lenders require the second home be located in an area known to be “resort” or “vacation” destination
- Borrower must occupy the property for some portion of the year
- Restricted to single family unit (attached, detached, condo, single family residence)
- Borrower must have exclusive control over the property, no time shares or rental agreements on the property
- Cannot be subject to any agreements giving a management company control over occupancy, i.e. engage short term rentals
In other words to be a duck (second home) it has to look like a duck, walk like a duck, quack like a duck and smell like a duck. (Or taste like one cooked and served with a nice orange sauce)
Over the years we have had many families purchase second homes that eventually become their retirement homes, selling their primary residence when the time comes giving them a free and clear home at retirement; and in the meantime having the enjoyment of a vacation home in the desert, mountains or seaside community.
If considering an early purchase of a retirement home now is a great time to do so with rates low and home prices, though higher than a year ago possibly lower than when you are thinking about retiring.
Considering a vacation home? Give me a call to discuss your options and opportunities!
Important note for Southern Californians: Many vacation homes, or condos, are purchased in Riverside (Palm Springs/Desert), San Bernardino (Big Bear/Lake Arrowhead), San Diego, Ventura or Mono (Mammoth) Counties; these counties have lower loan limits than Los Angeles and Orange County. Making it doubly wise to check in with your knowledgeable mortgage professional (me!) to get pre-approved for the right loan amount and right guidelines before you start to look for your vacation home.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Being the first week of the month we received a lot of data on the economy from January. Leading off was personal income and spending for December. Total personal income was up 0.3% in January from December, a nice increase but it was tempered by only 0.2% increase in wages and salaries and a reduction in manufacturing income. Pulling up personal income was rental income and income from proprietorships (sole proprietorships and partnerships—many small businesses fall into this category). Overall consumers made more, but they did not spend more in December with consumer spending flat from November to December, which is not very good news for the overall economy since consumer spending is 65-70% of economic activity. The result of higher income and lower spending is an increase in the savings rate, which climbed to 5.5% in December, the highest in four years. Higher income, lower spending and higher savings also means lower consumer debt. This news taken in total is net neutral for mortgage rates.
Prices in December matched income, with the PCE price index (Personal Consumption Expenditures, i.e. what you and I buy) flat for the for the “core” rate (absent food and energy) and down 0.1% for the month. Year over year the core rate is up only 1.4%, well below the Fed target of 2.0%. The news is paradoxical for mortgage rates. On the one hand the slow price growth encourages lower rates as they portend a slow economy, on the other hand it supports higher rates from the Fed as their inflation target is a ways off.
News for the labor markets for January was not great. Weekly unemployment filings have been climbing for the past several weeks and continuing claims are also climbing indicating those who have lost their jobs are taking longer to get a new one. Today we received the payroll report for January and the economy added 151,000 jobs for the month, well below December’s 292,000 new jobs and the consensus of 188,000 jobs for the month. A bit of good news in the report was the labor participation rate ticked up and the unemployment rate ticked lower to 4.9%, as well the average workweek increased by 6 minutes to 34.6 hours per week. The news is somewhat mortgage rate friendly
Rates for Friday February 5, 2016: Mortgage Backed Securities (MBS), from which our rates are derived (as seen in The Big Short), had a very choppy week and moved mostly sideways. The MBS market is a bit unstable and looking to either break out above the trading range (lower rates) or fall below (higher rates) and not giving clear indication which is more likely. My advice is to lock in when you can to avoid the volatile market conditions. Through the volatility rates are flat from last Friday—and where they were the first Friday of last February.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.5% Down 0.125%
30 year high-balance conforming 3.75% Flat
30 year FHA 3.25% *** Flat
30 year FHA high-balance 3.25% *** Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages. ***FHA rates have no points and credit towards closing costs, recent rate change reduces credits
It’s time for the unofficial national holiday known as the Super Bowl. A great story line this year as the very popular, and aging, Peyton Manning plays in what will probably be his last game goes against the upcoming, or arrived, superstar Cam Newton. I have a business interest involved in rooting for the Panthers but wouldn’t be terribly disappointed to see Peyton join his boss John Elway in winning his last game and hoisting the Vince Lombardi Trophy.
More people bet on the Super Bowl than any other game in any other sport in America (the World Cup dwarfs the Super Bowl). The total in Vegas last year was $119 million, the most by more than 20% of any other year. And that figure is estimated to be about one-third of the total amount gambled on the game. Consider the squares pool you are in, say $25 per square, 100 squares, for total of $2500. That is one game in one office, now multiply that by hundreds of thousands, millions, or offices around the country.
Here are some of the more interesting “prop” bets this year:
He has been criticized by many for his “dabbing” but he will dab, but how much? The over and under is Cam will dab 10 times. I would bet the over on this.
You get 10 to 1 odds betting there will be an earthquake during the game. I bet no.
How many times will the Golden Gate be shown during the broadcast, the over/under is 0.5 (over means they show it once, under not at all). I bet yes.
You can bet on what color will be the liquid poured on the winning coach, and choose from six colors and clear, the highest probability is orange (5/4 odds). I bet blue as the odds are better (3/1).
There are plenty more from what song Cold Play will start their set with to what color Beyonce’s shoes will be to the team to score first to the player to score first.
And of course my favorite, will the coin toss be heads or tails. I always take tails.
Enjoy the game…or the commercials!
Have a great week,
Dennis
