With the new year right around the corner, mortgage rates have been on the decline and could be approaching 'good' (at least in comparison to where we have been) over the past few years. In fact the 10 year treasury dropped below 4% today!
For the well-qualified primary home buyer - on a 30 year fixed mortgage - rates that begin with fives are now achievable. Typically, conventional (full income verification) investment property loan rates are 1%-ish higher than prime primary rates, but that margin seems to be narrowing for prime borrowers.
For example on a recent jumbo investment property loan with 20% down, with .5% in total lender costs rates are in the 6.5% range and improving..that is a significant difference from two years ago when most investment property loans were nearing 8%! Furthermore - the lender on this particular property matched what another lender was offering, by a significant amount.
Although exceptions are historically commonplace (they've been tighter in recent memory) and the substantiality and competitiveness of the concession indicates that lenders are anticipating lower rates over the near to long term. Why else reduce the yield so dramatically? Granted, there are some extenuating circumstances to consider:
- Hyper well qualified borrower
- Very good mortgage 'paper' (loan amount, credit, collateral)
- Prime RE Asset (luxury coastal home on strong terms)
- Large loan (lender asset) at what is likely a higher rate than will be in the near future
Looser Lending Criteria
Let's be honest, there is a real estate developer at the economic helm and if you have read Mr. Miran's monetary thesis - the dollar is going to intentionally decline and mortgage rates will go lower...much...much...lower. It will not happen overnight, but the first FED official of the new regime has already been installed and the rest as they say...is history. Not to get political - but since we are being truthful, monetary policy is not independent and there has already been an intentional loosening of banking rules to facilitate more lending and more...activity & profits.
Things to watch:
ARMs (Adjustable Rate Mortgages) are increasing in percentage of loans closed, as are interest-only, lower down payments on DSCR or NON-QM (Alternative Income & Asset Verification) as are the DTI, reserves and employment duration criteria.
It isn't quite the 'glory' days of NO-DOC but if you have a credit score, a job or business and some savings, you can qualify for a mortgage one way or another. For example:
- P&L (using a profit and loss statement)
- Asset Depletion (using 'liquid' assets like stocks as a basis for meeting the obligation over 3-4 years).
- Bank Statements (Average deposits 100% for personal and usually 50% for business accounts).
- Various Lender Specific Conditions such as: (Removal from DTI for departing residence, 0% down with Grants, Rate-Buy Downs, I/O)
- DSCR (Reserves and reserve combo - if the debt doesn't service lenders will utilize reserves to cover the proposed difference)
The short of it is that if there an investing opportunity - for the moment there are lenders that will consider the loan. Should rates reach the anticipated range - expect tens upon hundreds of thousands of home buyers and investors to aggressively enter the market.
Additionally - those with existing higher rate mortgages will refi, those with equity will leverage and valuations of prime assets will sky rocket. In a low rate environment asset prices generally accelerate. In an environment of pent up demand - it could bring dramatic demand to the market.
Beyond that - I'm not sure where the market 'ends, but lower is the rate trend for the foreseeable future.
Check live rates and terms here: https://www.loanfactory.com/anthonywong
