What Home Loans Are Disappearing?

What Is Happening in the Housing Market this Week?

This week we have a housing update to better explain what it means to be in a pandemic market with low inventory, increasing prices, and you and your family trying to figure out whether you should sell or buy today. So last week we talked about the importance of what having lower inventory would mean to you and your family. This week I’m going to talk about it from the perspective of what kinds of loans are out there and how that affects you.

Once again, I’m not a lender. I’m a real estate broker, but that means I work with lenders all the time. Lenders are interested in not just how much money you make but in how much you have to spend after your fixed debts. So if you have car payments, consumer loans, student loans, etc., that is going to affect how much money you have to spend. They look at it as your debt to income ratio. So when you get a conforming loan (A loan that’s below $550,000), it’s at one standard that’s more generous. If you get a jumbo conforming loan, that’s a little bit lower standard that you can go up to like 45% debt to income ratio. And then it drops down to more like 42% or 43% if you’re getting a jumbo-conforming. And that can be a really big difference for a lot of families because that could be the difference between having car payments or having your car paid off.

So how does that affect you and me in the housing market? Well, the jumbo-conforming loan limit right now is at $701,000. And what that means for you is that if you want to sell your house for, say, $800,000, somebody can’t come in and put 5% down on it and get a jumbo conforming loan because the maximum jumbo-conforming with 5% down is $738,000. They would have to put more money down. If they wanted to put just 20% down they could go up as high as $876,000, and then above that, they have to transition to that jumbo loan. So this is about what kind of bucket you fall into for which kind of loan you want to get.

Why does that matter to you and me? Well, it’s because, since the pandemic, the biggest thing that’s happened for the housing market, in general, is that buyers want to buy, sellers want to sell, lenders don’t want to lend. And you say, “Well, wait a minute. I know everybody that’s wanting to re-fi.” And that’s exactly the point. Lenders are doing like four times the volume that they’ve done in recent years, but buyers and sellers, there’s less selling and buying going on, partly for reasons I described last week and partly because of people who’ve been ill or furloughed. So we kind of went through that.

But what I want you to know is, that means that if you are a first time home buyer you pretty much have the FHA or a VA loan if you qualify for one, and that’s about it. And if you want to get a looser criteria on getting home today, you’re either doing a jumbo conforming and staying below $701 for your loan or you’re getting a first and a second trustee. We haven’t seen that since before 2007 or 2008. And I know you’re going to ask me, the next thing most people ask is, do I think that this is going to be a bubble? No, I don’t. In the homes that have sold above $876,000, so above that jumbo rate, jumbo conforming, where they could put 20% down, there’ve been about 2000 homes since April 1st, so since the beginning of the pandemic. One quarter of them, 500 of them, were cash only, and the rest were, a vast majority of them, over 70% were conventional and that means they put down at least 20% if not at least 30% for a lot of those conventional loans. S

o what does that mean for you and I who want to figure out what do we do in the market? So let me break it down fast. If you are a buyer and you do not own a home yet, now. Start now. Buy now if you can because inflation is making it harder for you to buy than it ever did, and now is the time for you to get in because interest rates are low and the odds are good that you can afford the payment even though the price is higher. Number two, if you want to move up and you’re staying here in San Diego, you should sell and try and move up. You can rent and move up if you’re able to, but you should sell and try to move up now. Why? Because that gap is widening, because as things go up inflationary, that home that’s worth more and increases more then becomes a little bit more out of reach as you go.

Then, part three, if you’re an emptynester and you’re looking to downsize, particularly if you’re looking to downsize out of state, now is an excellent time. So as always, if you have any questions about this or you have any thoughts of selling or buying, give me a call. Let me know what your thoughts and questions are, and I look forward to talking to you.