State of the Texas Title Industry 2022

Let’s start by pointing out that the real estate market is like the weather. It is very localized. It changes like the seasons. And it can often be unpredictable. Stormy skies today may be sunny tomorrow. And just because it is raining in Houston doesn’t mean it is the same in Austin.

The year 2021 was an unexpectedly good one for the title industry. Historically low interest rates, a strong housing market and hearty refinance numbers made for a positive year.

Higher prices, Fewer Transactions

We’ve started 2022 with a record low inventory of homes for sale across North Texas. Consequently, we’re expecting fewer sales in 2022. Fewer real estate sales means less business for the title industry.  

With the rise in both home prices and interest rates, housing affordability is expected to worsen. As long as demand exceeds supply, 2022 will challenge potential home buyers. That makes this housing market very different than some of the booming seller’s markets we’ve seen in the past 20 years.

This year of high prices is not the real estate bubble the country experienced prior to the great recession of 2007-2009. There have not been a lot of subprime and risky mortgages issued in recent years. This market is a different situation because it is driven by supply and demand. Most homeowners currently have positive equity in their properties.

As mortgage rates rise, the refinance volume is expected to dip and provide less title insurance business in that sector as well. Refinance transactions typically account for at least 20 percent of annual title insurance volume.  Industry experts from The Title Report indicate that refinance transactions could drop by 40 percent. That will depend on interest rates which are expected to slowly rise to about 3.6 percent on average by the end of the year.

Changes in the Title Industry

The title business has had to adapt to a lot of change - like most businesses in the last two years. The pandemic brought about a boom in remote signings and curbside closings. Record setting volumes have combined have created their own challenges in this business that is highly regulated by the state.

This past year also saw a rise in financial scammers and security breaches. Additional security and advanced technology in the title world are expected to continue developing rapidly throughout 2022. Title companies will be expected to adapt quickly to the changing technology and additional requirements to challenge their expertise.

The consensus among industry experts is that while 2022 may not be as robust as the previous year, it should still be another good year for title volume. Confidence remains strong as we see what direction 2022 takes us. 

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When is Refinancing Worth It?

The refinance market is booming with homeowners taking advantage of record low interest rates. However, millions of homeowners are passing on the opportunity to save money by refinancing their current home mortgage. Many of those mortgage holders are just not sure if refinancing is worth it.

The Pros And Cons

Refinancing is replacing a current mortgage with a new one. The new mortgage loan pays off the old one, and the homeowner is then responsible for paying the new mortgage. There are significant time and costs associated with refinancing. It can save a homeowner money or cost money.

“Any determination of whether a borrower should refinance is dependent on whether or not the transaction creates a tangible benefit,” says loan officer Alison Hannah, Vice President of IberiaBank.

Do The Math – Consider The Fees

Closing costs are an important factor in deciding whether to refinance. Like an original mortgage, refinancing requires a title search, credit report, appraisal, application fees, recording fees, tax certificate, and title insurance. Costs can also include an origination fee, processing fees, and more. Refinance fees and closing costs can add up depending on the loan amount, discount points you may buy, and what the lender charges.

Total closing costs typically amount to 2 to 6% of the new loan amount. According to Freddie Mac, the average closing costs on a mortgage refinance are $5,000.

In December 2020, the Federal Housing Finance Agency plans to add in a refinance fee of 0.5 percent of the loan amount to all refinance loans sold to the government-supported entities Fannie Mae or Freddie Mac. That accounts for about 70% of all U.S. mortgage loans.

A lower interest rate might not be worth it if your savings are consumed by fees and closing costs.

How much should mortgage rates fall before you think of refinancing?

Many experts recommend refinancing when it would reduce an owner’s interest rate by 1 percent or more. Every refinance has a break-even point. That is a point in time where your refinance pays for itself.

“The cost to refinance must be recovered via the reduced payment in a short enough period of time so as to make sense with respect to the borrower’s holding period,” advises Hannah.

To determine this, divide your mortgage closing costs by the monthly savings of your new mortgage. If you are paying $5,000 in closing costs and will save $200 per month because of refinancing, it will take 25 months to break even.

Break-Even Period on a 30-Year Mortgage

Use a mortgage refinance calculator to enter your current interest rate, monthly payment, and your new loan terms and calculate how the two mortgages would compare. If you do not plan to keep your home past the break-even point, it does not make sense to refinance.

Every homeowner’s financial needs and goals are different. A 1 percent interest rate decrease may offer significant savings on a $1 million mortgage but not make financial sense for a $100,000 mortgage.

Getting a Mortgage Can be Complicated

The refinance activity this fall has been a rollercoaster pattern of increased refinance application volume followed by a dip in requests. Forbes Advisor published a survey in October 2020 stating that about 32.4 million homeowners have a home loan with a 0.75 percent higher rate than today’s average mortgage rate. That represents about three out of every four mortgage holders with a 30-year mortgage.

Not all of those homeowners are eligible to refinance due to their income, employment, credit scores or home value. However, there are millions of qualified homeowners who could save hundreds of dollars a month on their house payments. So why isn’t everyone doing it?

Many homeowners do not want to go through the hassle and the paperwork that refinancing requires. The process can be daunting and not everyone is prepared or willing to jump through the hoops. They forget that the lender is handing over a big sum of money and even the most loyal clients carry a risk for repayment. Be prepared for the significant time and effort involved in refinancing.

Do Your Homework

When it comes to interest rates and closing costs, mortgage lenders take into account credit score, income, assets, loan amount, and property value.

Know your credit scores since they affect your interest rate. The higher your credit score, the lower the interest rate. Many lenders recommend a credit score of at least 720 to qualify for the most competitive rates. Consider taking steps to improve your scores before refinancing.

If you are unsure about refinancing, choose a knowledgeable mortgage lender who can help you decide. Know what costs to expect and whether it makes financial sense for your situation.  [where: 75230]

Should you make your last house payment?

A reader asks: “Should I make my next mortgage payment before my house closes? We are under contract and scheduled to close on the 14th of the month. “ 

This is a fairly common question for title companies. And the answer depends on your closing date and time.

Before closing, the title company will order a ‘payoff’ from your current mortgage company. After confirming and calculating what you owe on your current mortgage, we deduct that amount from your proceeds at closing and send that payoff amount to your lender.

For most folks their mortgage payments are due on the first of the month. And they are considered late on the 15th of the month. That kind of makes your situation a little more complicated.

In a perfect world, you and the buyer would sign papers in the morning, the buyer’s lender would promptly review and approve all documents, and send funds to the title company. Then the title company would quickly disburse funds and pay off your mortgage before the mortgage company’s  afternoon wiring deadline. But in real life, it doesn’t always work that smoothly. One or both of the parties could be signing in the afternoon, funding approval could take a couple of hours, etc.

For that reason, many title companies schedule the payoff amount based on the day after closing. If your closing is delayed or the payoff is not received before your late date (likely the 15th), you could incur a late fee. But let’s presume everything is on time and the title company has the payoff amount correct.

“My advice would be if you have not made your payment for the month and you are closing on the 14th then your payoff with title already includes the interest due for November. So it is ok to not make the payment even up till the end of the month as long as the loan funds in November and the payoff is wired to the lender,” says Michael Fooshee, Senior Loan Officer at Verity Mortgage.

He warns that you could be charged a late fee if the payoff comes in under the amount due or after the due date. “But your credit should not be affected unless the full payoff or payment wasn’t received by the lender by the last day of the month,” Fooshee adds. “If you are faint of heart, then I would recommend to go ahead and pay the monthly payment.”

“Any over payment made will be reimbursed to you,” says Fooshee. “Also, if you have a positive escrow balance, then you will receive a refund typically 2 to 3 weeks after the loan is paid off.”

Ultimately, you must pay for every day that you own your property and will not pay for the days that you no longer own it. If you overpay, you’ll get money back. If you don’t make that last mortgage payment, you should be okay – as long as everything goes as planned.

The opinions expressed are of the individual author for informational purposes only and not for the purpose of providing legal advice. Contact an attorney, accountant or mortgage officer to obtain advice for any particular issue or problem. [where: 75230]

How Shopping for a Mortgage affects your Credit Score

Contrary to popular belief, shopping around for a mortgage will not hurt your credit score. Even though multiple credit inquiries can negatively impact your credit score, there is an exception when it comes to credit inquiries from mortgage lenders.

All mortgage inquiries made in the 30-day period prior to scoring your credit are usually ignored. Furthermore, inquiries outside of that 30-day period that fall within a typical shopping period are typically counted as only one inquiry.

So, go ahead and shop around. I recommend you shop around for a mortgage with 2 or 3 potential lenders before committing to a mortgage company. Do this before you find the the home you want. Once you've put a home under contract, your loan process starts immediately and requires a lot of documentation.

Based on client feedback, the best Dallas mortgage lenders I've had experience with are:

Alison Hannah, IberiaBank,
972-348-6141
Alison.Hannah@Iberiabankmortgage.com

Bill Ajello, The Lending Partners
214-572-1080
bajello@tlpoffice.com
www.billajelloloans.com

10 Commandments of Home Loans

Blue Moon mortgage rates?

The 2015 mortgage rates to buy a Dallas home are still so low, I have to wonder how often we get to see great deals on home financing.

Less often than a blue moon.

While current rates are still well below the past 40 year averages, they are expected to increase a full percentage point in the next 6-9 months. Why do we care so much about a single percentage or less? Because it makes a huge difference in your monthly payments and in what you can ultimately afford to buy. When I bought my first home in the 80s, the average mortgage rate was 12.7% and I paid more than that. Ugh.

A $200,000 house payment ( on a 30 year note) costs you:

• $877 a month if you got the low 3.31% rate in 2012. 
• $3,177 a month if you paid the high 18.63% rate back in 1981. 

That's for the exact same house!

By the way, tonight is a Blue Moon so I couldn't resist making the reference. The definition of a Blue Moon is a full moon that occurs twice in one month. Take advantage of today's low rates to make your home purchase more affordable.
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Interest Rates vs Home Prices

I can remember paying a double digit interest rate for my first home back in the 80s. What a difference in today's mortgage rates.

Someday we'll all look back at current mortgage rates and say "And to think I could have paid THAT interest rate".
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Wait a Year to buy a Home?

What could be the impact of waiting until April 2016 to buy your dream home?

The financial effect to your mortgage payment is significant. Consider:

The most recent Home Price Expectation Survey predicts that home prices will appreciate by 4.4% by the second quarter of 2016.

The latest Freddie Mac Primary Mortgage Market Survey shows the current 30-year fixed rate at 3.7%. Their projection for this time next year is that the rate will be 4.7%. (a full percentage point higher).

Contact me if you'd like to discuss your options before the experts' predictions become reality.
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What happens when a house doesn't appraise for the sales price?

With rising prices in the Dallas housing market, one of the biggest concerns for a home seller is the appraisal. Because appraisers determine value based on sales over the past few months, sometimes the appraisal can come in below the price a seller can currently get for their property. And the common perception is that if the house doesn't appraise, then a buyer can't get a loan to purchase it. And no seller should limit their buyer pool to only cash buyers.

But an appraisal that falls short of the sales price is not always the kiss of death for the sale. Real Estate Attorney Ashley Cook explains, "The Contract does not require that the property appraise for the sales price nor does it require that the buyer obtain an appraisal. The lender, in its sole discretion, can decide to make a loan whether or not the sales price meets or exceeds the appraised value."

Where it gets difficult is that each lender has different criteria for loan approval and typically the lower the down payment, the more important the appraisal number. Our Texas residential property contracts indicate that "if the property does not satisfy the lenders’ underwriting requirements for the loan(s)(including, but not limited to appraisal, insurability and lender required repairs), the buyer may terminate this contract ...”

So basically, if the buyer's mortgage company will not give them a loan because the appraisal came in too low, then the buyer can walk away and get their earnest money back. Let's say an appraisal comes in 7% below the purchase price. If the buyer is financing 95% of the purchase price and/or their lender is tight, you have a big problem. If that same buyer is financing 50% of the purchase price, then it probably isn't an issue. The more cash a buyer will able to put down, the lower the chance the lender will reject the loan - regardless of the sales price.

"The question to be asked when the appraisal comes in lower than the sales price is not what are the parties going to do, but will the lender make the loan," says Cook. "If the lender will not make the loan the buyer should obtain that in writing. If the lender will make the loan then the buyer must close on the property for the agreed upon price even if it is more than the appraised value."
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Why you have to sell your house TWICE

When you put your house on the market to sell, all you need is a ready, willing and able buyer. Right? Not so fast.

Almost every house in today's market must be sold 2 times - first to a buyer and second to the bank that is financing the mortgage.
That 2nd sale can be more challenging than the first because the appraisal process has gotten so difficult. If a property doesn't appraise, then a buyer can't get a loan to purchase it.

Too many sellers - and their agents - list a property at a price out of wishful thinking. Imagine finding someone willing to over pay for your house only to be heartbroken when the buyer walks away from contract, gets their earnest money back and you're left unpacking. Not to mention the effect of being off the market for weeks and even under contract to purchase your next home.

A good agent should prove to the owner (with valid comps) that a property is worth the price they want. Be wary of an agent who tells you anything you want to hear just to get your business and then comes back later trying to work you down to the realistic price you should have started with.

Mortgage consultant Bill Ajello with The Lending Partners explains "Surveys show that there was a challenge with the appraisal on almost 20% of all residential real estate transactions. It has become more difficult to get the banks to agree on the contract price. A red flag should be raised if your agent is not discussing this with you at the time of the listing."

I always want to show my clients my plan to sell their house – TWICE!  [where: 75230]

How a rise in interest rates will effect home prices

Reports have been circulating that if mortgage interest rates begin to rise rapidly, home prices will drop substantially. It makes sense, because buyers can afford less home if they are paying more in interest. Typically a 1% rise in mortgage rates equals a 10% rise in the overall cost of the home for a buyer (check out this article that explains it).

However, that has not been the case over the past 30+ years. Mortgage interest rates have quickly shot up 4 times in the past 35 years. And you can see from this chart ( from Keeping Current Matters) that an big increase in rates doesn't mean that home prices will fall.

We'll have to see if history continues to repeat when it comes to interest rates and home prices.

Why are homes more affordable if prices are up?

Dallas homes are more affordable now despite the rising prices, low availability and increasing demand. How is that you ask?

It's the mortgage interest rates that are keeping home ownership within reach for many folks. Take look at this chart that shows what a $200,000 mortgage costs based on your interest rate. Rates have been inching up and that trend is predicted to continue.

 

The easy way to think of it is that a 1% difference in your interest rate roughly equals a 10% difference in the price of the home. If interest rates increase by 1%, then its about the same as paying 10% more for the property.

Take advantage of today's low mortgage rates or some day your kids may say "You mean you could have locked in a 30-year fixed rate mortgage under 5 percent and you didn't?"
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Dallas Home Loan standards

The home mortgage industry is constantly changing and varies in different parts of the country. But for Dallas in June 2014, here are the basics of getting a home loan.

These are the simple guidelines that lenders are following today.

Qualifying Ratios: How much can you afford ( or qualify for)?

• Debt (monthly credit obligations) to Income (monthly gross or net income) Ratios determine if the buyer can afford the home.

A General rule is 45% of your Gross (Employed Borrowers) and Net (Self employed Borrowers)Income can be used for house payment and all other monthly obligations. Someone making $10,000 per month could have $4,500 in total monthly expenses which would include the new house payment. There is some flexibility but the guidelines state 45 percent.

Basic Items needed for Loan Qualification (get these ready before you finalize a contract to purchase):

• Most recent two years filed Tax returns - all pages.
• Most recent W-2 for two years.
• Year end pay stub and most recent 30 day pay stubs
• Your bank statement showing you have the cash for down payment and expenses to close.

For more information from an actual mortgage officer, check my list of great professionals here.

When you know what you can afford, give me a call and I'll help you find it.

What the public knows about your home loan

Are you one of the many Dallas homeowners surprised to find that your neighbors know what you paid for your home ... and probably how much you owe on it?

There is very little privacy in a home purchase today. Any loan on a property is public information. A property can be purchased under a corporate name or LLC, which could keep the owner's name private. However, all liens and mortgage documents are public record.

The public can easily find the name of your lender and the original loan amount on a property. Your interest rate, monthly payments and how you have handled your payments is confidential. Open records do not show the current balance on a mortgage. But it doesn't take much skill to estimate a homeowner's mortgage situation.

I don't like that this kind of financial information is public. Unfortunately, the only option to avoid this loss of privacy is to pay cash for a property. [where: 75230]

Why Realtors know the Best Mortgage Lenders

Successful, active agents know who the best mortgage lenders are and which ones are disappointing and often inept. We hear what our clients have to say about their lenders, we see the rates and services they get and we see how efficient or inefficient they are.

Home buyers sometimes ask me to recommend a mortgage lender. But more often, they already have an idea of a company they intend to use for their financing. Sometimes they're great. Sometimes they're horrible.

I encourage anyone buying a home to get a second opinion on their home loan before committing to a mortgage company. The issue that usually prevents this is timing. When you put a contract on a home, the clock starts ticking. Buyers must get their home loan process started immediately. The application is usually lengthy and requires a lot of documentation. Appraisals must be ordered, underwriting reviews are done, ... they take a while. Not all lenders are the same and some take a lot longer than other. A whole lot longer.

Step one is to get a pre-approval letter before making an offer on a property. Step two is applying for a loan as soon as the ink is dry on the contract. The time to get a second opinion and finalize your lender is during one of these first steps. A good mortgage lender will respond quickly to your request.

My favorite mortgage lenders that I hear great things about from clients and I know from personal experience are:

Alison Hannah, PrimeLending, 972-348-6141 ahannah@primelending.com

Alan Felch, Lending Partners, 214-683-1770 alan@thelendingpartners.com

Steve Hakes, Affiliated Bank Mortgage, 214-643-6021 steve.hakes@affiliatedbank.com

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The truth about getting a mortgage in 2013

Getting a mortgage in June 2013 an extremely frustrating experience for most home buyers. I should know - I've been through it 8 times so far this year. Seven of those were with my clients and the most recent was my purchase of a home for myself.

The mortgage process should not be this difficult for qualified buyers. And I'm talking about people with good credit scores who could pay cash or finance just half of the purchase price. But plan to buy a house through one of the big banks and you'll find yourself with last minute delays or unable to close on your property and fulfill your obligations under your contract.

The worst offenders right now are Wells Fargo, Bank of America and USAA. Some sellers won't complete a contract with a buyer using one of these banks. And I don't blame them. The chances of getting the property financed by the closing date with one of these banks is highly unlikely right now. I don't care what these lenders promise you, they probably won't meet the deadline and it will likely end up costing someone more money - usually the buyer.

So why are the big banks being so difficult? Why are they stringing their clients along with half-hearted attempts at granting mortgages - only to leave both buyers and sellers frustrated with they can't meet their promises to fund?

My theory is because the interest rates are still low that they have no motivation to lend. Banks know the rates will rise soon. So why lend at these lower rates now?

If you want to finance the purchase of a home right now, go with a local lender. In Dallas, Prime Lending, Plains Capital, Home Team Mortgage, Shelter Mortgage and First Private Bank are your best bets. Be prepared to jump through a lot of hoops, but you may get your deal done on time with these folks. And they will be honest with you about your loan. [where: 75230]

What it takes to get a Mortgage

If you're thinking of financing the purchase of a home, take a look at today's requirements for a mortgage.

• Plan to put a cash down payment of at least 20%.
• Your debt to income ratio should not exceed 34%.
• You will likely need 30+ days to finalize the purchase.
• The higher your credit score, the lower you interest rate. Work to get your rating over 750.  

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Today's Home Buying Hurdles

Now that Dallas real estate has turned into a seller's market, hopeful home buyers are facing more challenges. The two biggest hurdles to buying a home in today's market are:

• low inventory of homes for sale
• difficulty getting mortgage financing

The graph below shows the available inventory of North Dallas homes for sale as of today.

 

Lending conditions continue to be tight. The most important factors to getting a home loan are credit scores, debt-to-income ratios and down payment. A recent survey of bankers conducted by the Federal Reserve reveals which factors are also driving the banks’lending restrictions.

 

Bankers indicated that their biggest concern was “put-back” risk with 84.2% of respondents indicating that it was important to some degree. In recent years, lenders have been forced to repurchase loans sold to the FHA that have defaulted and been shown not to comply with the original agreement between the FHA and the lender regarding the quality of the loan. Concerns were also high about the “compare ratio”, an FHA formula used to measure how well a lender scrutinizes loans relative to other lenders. A high compare ratio would indicate that loans originated by a particular lender were defaulting at a higher rate and might result in a penalty for that lender.

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Bottom of the Real Estate market has Passed

"Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."

--Warren Buffett, American business magnate

The buy low, sell high mentality of successful investors is the key to real estate success as well. With home prices on the rise, the "buy low" opportunities are slipping away. Most savvy buyers seem to be finally realizing there are some very nice homes out there at some very nice prices.

The latest evidence came when home sales shot up in June and July while inventory continues to fall. Anyone contemplating a purchase should not dally. Median prices of homes are on the rise.

Mortgage rates are also rising. Rates have gone up about 1/2% in the past 10 days. Keep in mind that a 1% difference in your 30 year mortgage interest rate equals about a 10% difference in price. As rates go up, you'll be able to afford less home.
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Improve Your Credit Score

... and improve your mortgage interest rate. In today's market, mortgage loans are hard to get and the great interest rates are connected to your credit scores. I'm in the process of buying a condo and going through the loan process. Yeah, it's a hassle. Realtors should buy or sell a home every few years to remember what their clients go through.

Here are some suggestions to improve your credit score and make it easier to get a loan and a good rate:

Do:

• Pay your bills on time. Get current and stay current.
• Keep balances as low as possible on credit cards. Keep your credit balance under 30% of your credit limit. High debt hurts a credit score.
• Pay off debt instead of moving debt around. Keeping balances low, opening new credit accounts responsibly and paying on time will raise your credit score over time.
• Keep tract of your credit score. Order your credit score directly from a credit bureau and the inquiry will not hurt your credit score.
• Ask for a credit increase on your existing lines of credit if your debt is over 30% of your credit limit. This may lower your percentage of credit debt and increase your score. It only works if you manage your current debt responsibly and do not increase your debt.

Don't:

• Do not close unused credit cars as a strategy to raise your credit score and don't open new credit accounts just to increase available credit.
• Don't apply or open new credit accounts unless needed. Too many rapidly opened accounts will lower the average account age and have a negative impact on your score.
• Don't make any larger purchases prior to purchasing a home and don't even think about driving onto a car lot (where they sometimes run your credit scores).
• Don't think that paying off collection accounts or other derogatory items will remove them from your credit report. Closing an account will not remove it from your credit report.
• Inquires affect your credit score. Looking for new credit is associated with trying to obtain new debt and transalates to higher risk and lower credit scores. Only inquiries initiated by you over the most recent 12-month period are considered when determining your credit score, but, 24 months are reported on the your credit report. Auto and mortgage inquires are ignored if they occur over a 30 day period, called the "buffer" period.

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