U.S. Home Prices Post Record Gain, Topping Peak From 2005

U.S. Home Prices Post Record Gain, Topping Peak From 2005

Even against the backdrop of a global pandemic, the U.S. real estate market continues to grow faster than the wildest expectations.  Several factors, including the lowest mortgage rates in history, positive buying intent, and reduction of the unemployment rate, have pushed the home prices to the point that surpasses the 2005 index.

The latest quarterly report (fourth quarter of 2020) of the National Association of Realtors (NAR) shows a record jump in home prices. Single-family home’s median price took the biggest leap, soaring 14.9% to $315,000 in that period. The housing market has not experienced such a rise since 1990.

What does this record price boost tell us? Does this affect a large number of buyers who have survived the pandemic recession? Will this lead to inflation?

Analysis of the Ascending Home Prices

People are moving to suburbs: The flexible work policies amid the COVID-19 breakout and low mortgage rates have allowed thousands of people to leave expensive cities like San Jose, Brooklyn, and New York City. Those people have relocated to less expensive suburbs; a 20.7% price gain in the Northeast supports this trend. The West, Midwest, and South followed with 15.5%, 15.1%, and 14% gain, respectively.

The NAR data shows an increase in prices in every single metro area in the year-to-year index. Also, only 115 metros had a double-digit rise in the third quarter, but it increased to 161 metros in the fourth quarter.

The price hike will discourage the actual homebuyers:Record low mortgage rates have lured many new home buyers to enter the market. However, this trend is unlikely to last long. The NAR’s chief economist Lawrence Yun thinks so. He predicts that the buying power of potential buyers is going to get hit hard by the soaring prices across the country.

Low rates have increased the demand for new homes, which in turn drives up the price. There is also a low inventory that further skyrockets the prices. Despite an improvement in the employment market, most families are still recovering from the pandemic-related economic woes. So, a large position of these households won’t keep up with the growing numbers since the home prices are spiraling out of their financial ability. The current situation may scare off plenty of actual homebuyers.

A possibility of inflation:The Biden Administration has planned to help the hard-hit households with a $1.9 trillion fiscal stimulus package. Some experts apprehend that such a big financial aid will lead consumers to splurge, which may trigger inflation.

 Also, if people start spending that stimulus money, the cost of living will increase, driving up the growing home prices even more. Runaway inflation seems quite likely, which shot the 30-year mortgage rates to around 18% in the late 1970s.

 However, things may not turn so bleak as it sounds. The chair of the Federal Reserve, Jerome Powell, has dismissed the possibility of sustained or massive inflation. The Economists at Oxford Economics also share the same thought, saying that the inflation outbreak is unlikely to reach 3%.

Sources: Marketwatch & Markets Insider

American Expat teacher in Singapore refinances home in Tampa, Florida

American Expat teacher in Singapore refinances home in Tampa, Florida

The Client

International school mathematics teacher purchased a home in 2019 with a high-interest rate. Since she had long term tenants and the rent was covering the mortgage, she hadn’t thought about refinancing until one of her colleagues mentioned lowering their mortgage rate using Global Mortgage Group.

How We Helped

Although we gave her a very detailed report on the various options, including releasing up to $68,000 in cash out of her property, her priority was to get the lowest rate possible and maximize the rental yield.

Loan Details

NationalityProperty ValueLoan AmountLTVRate
U.S. Citizen $313,000 $181,540 58% 3.35%
Term StateProperty TypePurposeLoan Type
30 year fixed Tampa, FloridaSingle-Family Residence (SFR)RefinanceResidential
NationalityU.S. Citizen
Property Value$313,000
Loan Amount$181,540
LTV58%
Rate3.35%
Term30-year fixed
StateTampa, Florida
Property TypeSingle Family Residence
PurposeRefinance
Loan TypeResidential

U.S. Expat in Tokyo buys an apartment in Boston as a second home

U.S. Expat in Tokyo buys an apartment in Boston as a second home

The Client

Since our client had business monthly in Boston, buying a home there seemed to make sense rather than staying in a hotel.

How We Helped

With only 20% down, no W2 income, and self-employed tax returns, we were able to get the loan closed in 30 days.

Loan Details

NationalityProperty ValueLoan AmountLTVRate
U.S. Citizen $887,000 $709,600 80% 2.75%
Term StateProperty TypePurposeLoan Type
30 year fixed Boston, MassachusettsApartmentPurchaseResidential
NationalityU.S. Citizen
Property Value$887,000
Loan Amount$709,600
LTV80%
Rate2.75%
Term30-year fixed
StateBoston, Massachusetts
Property TypeApartment
PurposePurchase
Loan TypeResidential

What is the ‘Down Payment’ in a real estate purchase?

What is the 'Down Payment' in a real estate purchase?

Your down payment is the first payment you make on your mortgage loan. For example, if your house is worth $150,000, the lender requires you to pay a portion of that price upfront, called the down payment. Typically, it could be anything between 20% to 50% of the asset's price. So, at 20%, you have to pay $30,000 in advance to obtain the loan. Most financial institutions make it obligatory for the borrowers to pay the down payment.

You can pay the down payment from your personal savings or other legal sources. This payment for a home purchase is possibly the biggest single cash expenditure in most people's lives.

To obtain competitive mortgage rates, you'll need to pay at least 20% to 25% of your home's purchase price in a down payment. Some financial institutions require the borrowers to pay a mandatory minimum deposit in addition to the down payment.

Mortgages are price-sensitive, so one with a lower down payment has higher risk factors, which will warrant a higher interest rate. Plus, a low down payment can cause you to pay for private mortgage insurance. So, to get the best option at a reasonable interest rate, be prepared to pay out of your pocket in advance.

To get an overseas loan from Global Mortgage Group as a Foreign National, you will be required to pay only 25% in down payment. U.S. Expats get an unbelievably lower rate, which can be as little as 10% in down payment.

How is an ‘Annual Percentage Rate (APR)’ calculated?

How is an 'Annual Percentage Rate (APR)' calculated?

The annual percentage rate (APR) estimates the total interest rate you will pay on your mortgage, including any additional lender fees.

In your mortgage statement, you will see two interest rates, and the APR is always the one with the higher percentage. It accounts for all charges that come with the loan, showing the true cost of a mortgage.

There are two types of Annual Percentage Rates, fixed and variable. In the case of a fixed APR, the rate will be the same over the mortgage term. In the case of variable APR, it will change according to the changes in Treasury or WSJ prime rate index. Some credit card issuers may change the fixed APR rate from time to time but not without notifying the user 30 to 45 days prior.

Both APR types include the interest rate, discount points, and various charges like the closing costs, private mortgage insurance (PMI), to name a few. However, they don't include expenses associated with buying a home, such as a title search, title insurance, appraisal, transfer taxes, and more.

To acquire a good mortgage rate, you must clearly understand your interest rates and APR fees. If you take a 15-year loan, you need to pay the interest every month, but the APR has to be paid at the closing. Some institutions offer 0% APR if you can pay off the loan within a certain period.

When shopping for mortgages, compare APR rates offered by various lenders to find the best deal. Stay away from the lenders that warrant an unreasonably high APR for the same interest rate. However, don't get too focused on APR only because you may end up paying more by ignoring a lower interest rate for the sake of a low APR.

Property Taxes – How is this calculated, and why is it important?

Property Taxes - How is this calculated, and why is it important?

A tax imposed on a real estate property by the government is called property tax. The local government supervises the regulation and collection of such taxes within its jurisdictions.

● Some of the taxable properties are:
● Land (with or without constructions)
● Buildings
● Vehicles, RVs, and boats (in some states)

The local government sets up the property taxes based on either the market or appraised value of the properties. The assessed value is always lower than the current market price.

The property tax rates fluctuate as per the change in property value over time. The location of the property also impacts it. You pay more taxes if your property is situated in a prime location or a prestigious neighborhood.

Many taxing authorities use a "millage rate" instead of a percentage of the property's value to determine the taxes. One "mill" equals one-thousandth of a dollar. For instance, if the property tax rate on residential homes in your area is 20 mills, you will pay $20 for every $1,000 in the assessed price. If your home's assessed value is $350,000, you will pay $7,000 in taxes. In the case of a percentage system, it will be $17,500 at a 5% tax rate on residential properties.

Most property taxes have to be paid on an annual basis. However, if you feel the tax bill of your land or home is unreasonably higher, you can appeal to the local taxing authority for a reassessment.

Property taxes are a significant fund collection source for the local governments in the United States. They use this money to develop various public services and infrastructures.

Homeowners Insurance – Why is this important in the Loan Process

Homeowners Insurance - Why is this important in the Loan Process

Homeowners insurance is the insurance policy that ensures the protection of a home and its belongings from specific damages. You can take the insurance for a certain period and pay the provider's fixed monthly premium.

Standard home insurance is likely to cover your property from the damage caused by perils like storm, wind, hail, fire, theft, and more. Each coverage requires careful research and your living area's climate condition to decide what to keep and what not.

There is no legal obligation for a homeowner to get homeowners insurance. However, the lender may demand you to have a standard policy, at least during the mortgage period. It is also common to have a policy since it will help you recoup some financial losses after an accident. It would help if you also remembered to review the policy periodically and add and deduct the necessary clauses required for the protection of your house.

The definition of “Assets” on Loan Application Form 1003

The definition of Assets on Loan Application Form 1003

Assets refer to a wide variety of items you own that have a monetary value. When you apply for a mortgage, the lender looks into your asset inventory and determines their cash value to make sure that you are capable of returning the loan despite facing financial hardship, such as a job loss, during the repayment period.

There could be various asset types, including:

● Money, savings and checking accounts, certificates of deposit (CDs), and other similar sources — cash and equivalent to cash

● Tradable stocks, bonds, or something that can be converted to cash without dropping their actual price — liquid assets

● Lands, vehicles, antiques, business property, and anything that has monetary value but cannot be converted into cash quickly and may lose some of their value in the conversion process — fixed assets

● Investment money that is lent for interest, including government bonds, securities, and any type of investment money that yields interest — fixed-income assets

● IRA, 401(k) accounts, mutual funds, or anything that secures your ownership in a company — equity assets

You can also categorize them into tangible (physical) and intangible (nonphysical) assets. The lender assesses your positive net worth, indicating your assets have more value than your liabilities. It also helps establish your debt-to-income ratio.

To do the required evaluations, Global Mortgage Group requires only an International Credit Report, Accountant Reference, and some paper documents verifying your funds.

What is an Escrow?

What is an Escrow?

Escrow refers to a financial account in which the funds are managed by an intermediary like a law firm or dedicated escrow company on behalf of the two parties committed to a dealing or transaction.

The neutral third party won't release the funds until the deal is complete.

The use of escrow accounts is quite common in real estate dealings, but it's a valid means of keeping money on hold under a neutral party for any transaction.

During a home buying process, the first time you will need to use the escrow account is when making the earnest money deposit to reflect your intent of purchasing to the seller. You can get that money back if the appraisal returns the home's value lower than the sales price or the home inspection finds serious issues with the home.

If you purchase a home on loan, your mortgage lender will ask you to put some money into an escrow account for paying the homeowners' insurance premiums and property taxes. The provider uses money from this fund to pay tax bills and insurance premiums on behalf of the homeowner. It ensures that the bills are paid on time.

Every mortgage provider will do an escrow analysis each year because the rates of the insurance premium and property taxes are not fixed. This analysis ensures there are adequate funds in the account for paying these bills over the next year. The lender will send you a statement after each yearly review. There could be a shortage (not enough funds to cover the expenses) or overage (extra funds than necessary) in the account.

Setting up an escrow account is mandatory in any real estate transaction.