[Tina]

What specific economic indicators should I track to better understand the market?

[Tina]

I have watched mortgage and real estate news, YouTube videos, and podcasts. There seem to be a lot of videos about the housing market tanking and losing 50% of its value. Many are saying foreclosure rates are at historic highs. Others say many condominium complexes are going bankrupt, especially in Florida, due to high mortgage rates, property taxes, homeowners insurance, and homeowners association fees. What merit do these stories have, if any, or are they these YouTubers with clickbait to increase their viewership so they can capitalize and monetize on subscribers and views?

• This reply was modified 3 months, 1 week ago by  Gustan Cho.

[Tina]

Credit utilization is one of the components that can be detrimental to your overall credit score if you know how to balance your credit.

How To Manage Credit Utilization To Increase Your Credit Score

Definition: Credit utilization rate is the percentage of your total credit limits currently being used. This shows the usage of available credit resources.

Impact on Credit Score

High Utilization:

• A high credit utilization ratio of over 40% can permanently damage your credit score.
• Lenders will perceive you as someone who depends on borrowed funds, which indicates that you have borrowing issues.

Low Utilization:

• Maintaining a low utilization ratio of below 32% and beyond is required to show lenders you are responsible when using credit since you do not reach the limit of your credit cards.

Credit Scoring Models

All credit referencing models, such as VantageScore and FICO, regard the usage level as a key metric; roughly 30% of your overall score is based on such factors.

Step-by-Step Guide on Calculating Your Optimal Credit Card Utilization

Add the total limits across all cards you own to acquire the total counting.

Consider the following:

• If you own three credit cards with limits of $5,000, $3,000, and $2,000, then your total credit limit on all cards would be

$5,000 + $3,000 + $2,000 = $10,000

Calculate Your Current Balances

Take the total current balances on the cards.

• Example: Your current balances are $1,000, $500, and $200, then the total balance becomes:
• $1,000 + $500 + $200 = $1,700

Credit leased Calculated That:

The total balance is owned by dividing the credit limit by the total balance and multiplying it by 100 percent.

Formula:

• Credit Utilization=(Total Balance divided by the Total Credit Limit)×100
• Credit Utilization=( Total Credit Limit divided by Total divided by Total Credit Limit)×100

Consider the example:

• Credit Utilization=(1,700 divided by 10,000)×100=17%

​A credit utilization ratio of up to 30 % is the maximum allowable ratio—a gentle reminder: For most people, maintaining a credit limit of 60 percent will be sufficient. Watching your balances and limits regularly, Corrective measures can be taken to set a range, usually under 30%.

[Tina]

This is the summary of the national headline news on December 27, 2024:

Economic Perspective and Employment Situation

The Outlook for Employment:

• The forecasting models for the employment services sector in the US indicate that job declines of 300,000 in December can be reported.
• These suggest declines in some key sectors, such as manufacturing, wholesale, and retail, which makes the slow transition of the economy a bit tricky.

Likelihood of Inflation

There has been a deflationary trend, with the latest CPI data revealing an approximately 3.6% easing from the high inflation that occurred in recent years. Such a shift will lead to considerations regarding the Federal Reserve’s monetary policy in the coming months.

Real Estate Market Status

Worst Case Scenario Visualization:

• On a national scale, average payment rates and flat numbers on owned homes are expected to increase by roughly 3-5% in 2025.
• Other Midwest markets are expected to fare much better as demand and economic conditions strongly promote the real estate systems.

A Growing Concern:

• The number of foreclosure requests made to courts has increased by 15% from the previous year.
• This raises some eyebrows since more and more homeowners are struggling to make ends meet, making stability in housing hard to maintain.

Key Political Developments

Congress Budget Negotiations:

• The US Congress is bracing for negotiations related to the federal budget.
• If not resolved, it could lead to a government shutdown.
• Spending on such budgetary issues as social services and defense remains contentious.
• Over the past few weeks, we have all been witnessing the development of the 2024 presidential race.
• With primaries nearing, candidates are intensifying their campaigns.

Each recent poll indicates a growing competitive landscape with multiple candidates emerging as frontrunners against each of the two major party candidates.

Recent Changes in Healthcare

Newly Identified COVID Variants:

• The new COVID variants aid COVID-19 vaccination efforts by encouraging booster shots during these biker rally seasons.
• With an increasing number of cases within regions, health officials are working on devising new thankful measures.

Wellness Aid:

• Federal programs to tackle the mental body impact of the ongoing pandemic within the United States have also been introduced as aid.

Environmental Threats

Severe Weather:

• Due to extreme weather, heavy flooding and snowfall are occurring in regions across America, and citizens are preparing for possible disruption.
• Hence, emergency services are on standby.

Climate Change:

• The Biden administration is soon rolling out new climate change initiatives to rely on renewable energy sources and reduce emissions.

Cyber Security Issues

New Cyber Security Threats:

• US federal agencies are urging businesses to amplify their security policies due to the ever-increasing threat of cyber attacks.
• At the turn of the new year, the United States must tackle alleviating various socio-economic and political challenges.

What remains to be seen is whether the challenge of pandemic recovery will top the list.

[Tina]

The change in the interest rate after the Feds cut down on their rates could explain the increase in rates on mortgages and treasuries. This is due to market behavior as well as economic factors, which include:

Market Expectations

Future Rate Hikes: Even though the Fed is no longer cutting rates, this does not mean that economic activity is not active. If the Fed cuts rates, the market is always expecting an inflation rate or growth, so when setting investors’ timing with expansionary policies, it is reasonable to set the timing late.

Inflation Concerns

Persistent Inflation: Many economists anticipate inflation will be affected if the purchasing power for constant use is maintained by weaving in higher bond yields. Even investors might want this to protect their assets.

Supply and Demand:

Increased Bond Supply: An increase in bond supply might result from increased government borrowing or expenditure, which creates a high demand for higher yields but lower treasury prices. In the long term, this would certainly raise the mortgage presidential election.

Economic Indicators

Positive Economic Data: A reduction in bond rates would lead to the Fed increasing its lower requirements rate, which could be a consequence of an increase in job rates and higher levels of consumer spending, which could altogether change the market pointers.

Market Sentiment

Investor Sentiment: Changes in investors’ thoughts and feelings over time might cause them to struggle with bond prices and yields. Investors tend to feel that there is uncertainty or likely volatility, which can affect rates of interest.

Term Structure of Interest Rates

Spending Yield Curve: On the other hand, it can also be true that if an increase in long-term rates accompanies the cut in short-term rates, the yield curve can steepen. This further means that despite the Fed attempting to lower short rates to boost the economy, other factors determine long rates.

To sum up, even though the Fed’s cuts aim to ensure economic growth, several market forces might result in a rise in interest. These include expectations of future rate increases, speculation about inflation, constraints on the supply of bonds, and the state of the economy. This might give insight as to why rates might increase even when cuts have been made.

[Tina]

Given your strong credit score of 728 FICO and landlord experience, several loan programs may be available to you, most importantly for purchasing a 6-unit apartment building. Here are some suitable loan options and the documents gateway generally required:

Loan Programs

FHA Multifamily Loans:

Description: Loans for up to 4-6 units can be obtained under the Federal Housing Administration (FHA). These loans normally do not require a high down payment and can go as low as 3.5%.

Eligibility: At least one unit must be used as the borrower’s primary residence.

Conventional Loans:

Description: Any investment property considered for purchase, including a 6-unit apartment building, can be financed through conventional loans. However, a minimum credit score and a 20% down payment for a non-owner-occupied property are required.

Eligibility: Adequate income to pay the mortgage of the target property, properties already on rent, and good credit history qualify for conventional loans.

Commercial Real Estate Loans:

Description: Real estate loans may be suitable for a rental property the borrower does not own. Underwriting guidelines, in this case, usually differ.

Eligibility: A good business model and rent income of other properties are generally required for most lenders.

Portfolio Loans:

Description: For certain mortgage requirements, portfolio loans, as the name suggests, may be better since lenders possess such loans and do not sell them on the secondary market. These may have less strict requirements.

Eligibility: Depends on the lender; owning multiple rental properties might increase your chances.

Required Documents

No matter what kind of loan one applies for, the following standard documentation is required:

Personal Financial Statements:

Provide details regarding your assets, liabilities, income, and expenditures.

Tax Returns:

Individual’s tax returns for the previous 2 or 3 years.

Business tax returns where relevant (for rental).

Proof of Income:

The most recent pay stub or evidence of earning income.

Statements of rental income on the focused properties.

Credit Report:

The lenders will request your credit report; however, one could attach a copy for reference.

Property Information:

The set of documents concerning the 6-unit property, including all purchase papers, property listings, and any leases they may already have.

Rental History:

Proof of your experience in the rental property business, such as current rental contracts and payment history.

Down Payment Verification:

You are explaining the source of the money for your down payment using bank statements or any other evidence.

Suppose you have a credible credit score and experience with rentals. In that case, qualifying for the loan should be no problem, which will help you purchase a 6-unit apartment building. It would be sensible to reach out to a mortgage broker or a lender who deals with multifamily homes to aid you in evaluating your most suitable choices.

[Tina]

Debt-to-Income Ratio:

The debt-to-income ratio is typically 35-45% when financing a yacht or boat. Any reasonable lender would want you to be able to manage the loan while meeting your other financial obligations.

Loan Terms:

Boat and yacht loans range from 10 to 20 years. Only a few lenders can provide an upfront 25 years, while 30 years remain uncommon. It is quite common to find that the maximum maturity of the instrument extends to the total cost and measurements of the vessel.

Credit Score Requirements:

Most lenders require a minimum credit score of 700 for yacht or boat financing. Some may accept 680, but other lenders with 740-plus credit scores would overshadow their interest rates and terms.

Financing a $700,000 Yacht:

A $700,000 yacht will likely require a loan for 15-20 years. Given the large loan amount, acquiring a 30-year amortization will take much work. Lenders would like to see a strong credit score and debt-to-income ratio in order to obtain a loan of that amount.

Best sources of a boat:

An individual can take out loans from marine dealers, banks, and credit unions, which specialize in selling boats and yachts and are the foremost places individuals reach out to get a loan or credit. However, consumers should be aware that manufacturers or dealers might provide them with their type of financing depending on the vessel being purchased. When applying for loans or credit, comparing numerous options before settling for an offer is best.

Financing a luxury yacht or boat can be the same, and it is essential to know and understand these primary factors before approaching a dealer:

Loans assessments:

Assessor’s mortgage insurance avalanches for borrowers, or ownersowners of yachts and boats typically vary between 35 and 45 percent, making it easier for people to secure a loan as they can show some additional means to repay the loan easily. Furthermore, it encourages lenders to approve the loan by showing them that the borrower is financially stable.

Terms of the loans:

It is common to see loans against boats and luxury yachts for around 20 years, and some might provide a time span of close to 30 years with repayments spread out over the decade. Although it’s rare to see such borrowers, there has been evidence that a loan for a vessel span increases to 25-30 years due to its value and size, but it is less conventional to see that.

Previous risks:

Lenders tend to be skeptical when allowing loans to purchase yachts and boats. As such, they have laid down strict policies that allow them to ensure the risk of providing the loan or credit is minimal by screening the borrower’s credit score, with the lowest threshold being 700 and some even recommending greater than 740. However, some lenders are more flexible and accept credit scores less than 740, allowing them to provide loans at a lower default risk. Getting a Loan for a Yacht Valued at $700,000:

On a valuation of $700,000 for a yacht, it is reasonable to assume that the loan period will be between fifteen and twenty years. The expectations of most lenders will be such that they will not issue a thirty-year mortgage on the loan because of its massiveness. Because you ask for sizable obligations, lenders will want to rely on a strong debt-to-income ratio and a good credit profile.

Where to Seek For A Loan:

It is common to seek marine loans to finance boats and yachts from marine lenders, banks, credit unions, and even, in some cases, retailers and manufacturers. Exercising prudence when borrowing from so many payers is critical, as it helps establish the best repayment terms and fees.

To summarize the above, the major points when it comes to boat and yacht financing are as follows:

• Debt-to-income ratio: 35-45% maximum
• Loan period: 10 to 20 years, with some going to 25 years
• Credit rating: 700 and above is ideal, but 680 may be adequate
• $700,000 yacht: likely a 15-20 year loan, especially in the case of purchasers seeking longer terms
• Consider different lenders, including marine experts, banks, and dealers, among others

If you need more clarification or support, please ask me!

[Tina]

Information regarding Property Tax Prorations in Illinois Property taxes in Illinois are paid in arrears, which means that the taxes for a particular year are paid in the next financial year. However, This structure proves extremely impactful to some homebuyers in terms of property tax proration during real estate closings.

Proration of Taxes:

When a homebuyer buys a home, the property seller usually pays some of the property taxes for that year to use in the purchase. Those taxes are prorated, so the buyer can borrow a fraction of their total costs to close the deal.

Use Of Prorate Tax Credit:

Irrespective of the closing date used on the mortgage promissory note, homebuyers in Illinois are permitted to use the prorated credit as part of the mortgage. However, since the buyers must prove that they have a down payment, they are not obligated to take the proration credit with them to the title company since it was granted during closing.

Potential for Benefits:

This system blunts the pain for homebuyers as a lesser amount needs to be paid to close the transaction, which in turn provides greater access to homeownership.

States With Similar Property Tax Proration Practices

Property tax proration practices can be wholly different across the United States. Here are some states that have similar systems where property taxes are paid in such a manner that it is applicable to prorate the same:

New Jersey: Property taxes are paid in arrears, and prorations are applied to real estate transactions on sale as common practices.

Texas: Taxes are also paid in arrears, and prorations are possible occasionally at a given closing.

California: Property taxes are paid in arrears, and prorations have become common in most real estate transactions.

Florida: The practices are the same with property taxes, which are paid in arrears and prorations during closings.

This paper has shown that while many states have similar practices of paying property taxes after-due payment arrangements, the repayment terms differ. For instance, buyers, sellers, loan officers, and realtors based in Illinois must understand these prorations to complete the transactions exhaustively. It is, therefore, of tremendous importance to all parties concerned with real estate transactions to understand local tax laws and corresponding practices.

[Tina]

Non-QM Notes Following Bankruptcy Or Foreclosure

Non-QM (Non Qualified Mortgage) loans, such as reconstruction loans, may be easier for clients who have undergone bankruptcy or foreclosure to get. Here’s a broad synopsis of what benchmark requirements would most likely be associated with these kinds of loans:

Credit Score Requirements

Minimum Credit Score: The minimum score required to qualify for many non-QM lenders is 620, let alone those who have undergone foreclosure. The required score is, however, dynamic and will be determined by the specific lender and loan program. It is reasonable to expect that most lenders will set minimums higher for better terms.

Down Payment Requirements

Down Payment: Besides good credit scores, borrowers may have to make a down payment ranging from 10% to 20% or even higher, depending on the loan, the lender, and the loan. In some cases, a higher down payment reduces the adverse effects of the past credit history.

Credit Requirements

Bankruptcy: Regarding the collapse of a Chapter 7 loan, most renowned and credible borrowing agencies do not implement waiting times, making it possible for many borrowers to refinance immediately after the foreclosure so they may obtain a non-QM loan. However, some terms may vary depending on the borrower’s guidelines and the lender’s profile.

Foreclosure: Like their counterparts, these loans are offered at, and in scenarios after the bankruptcy, and non-QM loans offer the possibility to borrow without a waiting period after a foreclosure. But it must be stated that this depends from one lender to another.

Further Thoughts

Documentation: Hire purchase loans for investors are a form of non-QM facility. They don’t document at least as much as traditional lenders, but some form of income and assets will always be assessed.

Debt-to-Income (DTI) Ratio: The non-QM loan is acceptable even for higher DTI, more than 50% in some cases, which have high capacity actuarial and other positive factors that easily manage high-risk rates.

After going through bankruptcy or foreclosure, non-QM loans can provide a great alternative for borrowers who require no waiting periods. The requirements are as follows:

Credit Score: 620 should not be less.

Down Payment: 10% to 30% down payment.

Credit Requirements: Immediately after a bankruptcy or foreclosure, they might qualify.

DTI Ratio: The debt-to-income ratio should not exceed 50%.

Borrowers should reach out to certain lenders as there is great variability regarding multiple options in the non-QM area.