We’ve touched on the new disrupter OpenDoor, which is currently operating in Phoenix and Dallas (places where home values might be easier to determine):
https://www.opendoor.com/homepage
They are willing to pay cash for your house and close in three days, which sounds enticing for those sellers looking for instant cash. But they offer to buy your home at a below-market price based on algorithms, and fees range from 6% to 12%. They are glorified flippers.
The length of time it takes to close escrow should have improved by now. It still takes 30-45 days to process a sale, which might be advantageous for sellers who occupy the home – they usually need time to pack it up.
But for those sellers of vacant homes, or those who want to use their proceeds to purchase another home, a quick escrow might be preferred.
Thankfully, there are new alternatives.
Quicken is offering the Rocket Mortgage, and yesterday Caliber Home Loans rolled out their new product that can close a regular sale in 10 days or less:
These options should stop sellers from getting their head tore off just because they want a fast closing. These mortgage products could also really help the move-up market by alleviating the struggle of making offers contingent upon the sale of your current residence.
The regional VP of Caliber told me that their process is very innovative. They do not require the buyer to bring in the usual documents. Instead, they are getting them directly from the institutions themselves, which will help ensure accuracy. The IRS will furnish Caliber with income documentation, and the funds for closing will be verified directly with the banks themselves. The appraisals will be computer-generated in areas where you have easier valuations, like in Carmel Valley and Carlsbad where there are newer tract houses that are very similar.
We are close to being able to get a mortgage with the swipe of your ID card! It could invigorate the move-up market in 2017 – and Trump will get the credit!
Last month I had buyers who got their loan kicked around for 60 days by USAA, who still couldn’t figure out how to get it done. Caliber took over, and closed it in 8 days, start-to-finish.
https://gaylordhansen.com/
Half the battle is just being experts in your field.
“These options should stop sellers from getting their head tore off just because they want a fast closing. These mortgage products could also really help the move-up market by alleviating the struggle of making offers contingent upon the sale of your current residence”.
That’s probably a pocket market waiting to make a little run. I suggested to a friend who was complaining about the management issues with a fourplex to sell and buy a duplex in a better neighborhood. The rent would be around the same, fewer and better tenants, and far less headaches. He was for the idea except the property exchange sh*tshow. With time constraints and his prop 13 tax advantage on the line, a 90 day window is stressful. An incompetent broker can kill you, and you often don’t find out your broker is a flake until you’re waist deep in the “process.”
Yes, and the 90 days includes your escrow period, when the upleg brokers won’t be as happy about entertaining your offer because you’re not closed yet. In a 1031 exchange, you only have 45 days after closing to identify the properties you might buy.
you often don’t find out your broker is a flake until you’re waist deep in the “process.”
As was the case with USAA, a fantastic service-oriented company. But they farm out their mortgages to a third-party mortgage company, who doesn’t share the same top-notch service ideals.
A couple of days before closing, they tell us we need an additional 10% down payment to fit their guidelines?? You didn’t know that on Day 1? It wasn’t a qualifying issue – it was their program.
Then they tell me I need to have the HOA (of 200+ condos) get a new insurance policy – yeah right, I’ll just snap my fingers.
Incompetence is everywhere in the real estate business. Nobody commented on my post from last weekend, but it was a doozy. Half of the realtors haven’t sold anything in a year.
Is it very difficult to get bridging finance in the US? I would have thought 1% or so per month would be prefferable to a 6% to 12% punch on the nose.
Yes, difficult for common folk because banks want to make secured loans, which is possible but they want low loan-to-values too.
In South Africa the lenders fall over themselves to do it. 1. Is the mortgage up to date?
2. Are the rates and taxes paid up?
3. Get client to sign papers hocking the house and lend the money OR act as guarantor for the purchase of the upgrade. This is of course at a very favourable rate of interest for the lender – money for jam.
Though if Caliber can do mortgage bonds that quickly then bully for them and the bridging finance chaps will soon have to look to their laurels!
How does the time to close an all cash deal compare to one with a mortgage? (seeking to find the root cause of the delay). Also what is the time taken by a title insurance company to issue a policy? It would be interesting to graph the delays of the various items needed to complete a closing. It of course ranges from the time needed to see the flood zone a property is in, (which might also delay a mortgage), to what the deed restrictions are. One item that could be changed by law is to make a chain of title absolutely valid if its stretches for 25 years or so.
Everything can be arranged in advance, so no required difference in closing time between cash and financed.
The root causes for 30 to 45-day escrows:
1. Tradition
2. The buyer and seller gladly putting off the moving of their stuff for a couple of more weeks.
3. Lenders over-working an skeleton staff, expecting the market to tank any day. In the meantime, they’ve missed out on 2x or 3x the volume if they would have had a beefed up staff over the last seven years.
Every sale can be pre-packaged in advance, and literally close in one day if everyone works together.
We did one back in the rah-rah days when a buyer dropped out at the last minute. In order to save the sale for my sellers (who were buying another house they didn’t want to lose), I went through the same Countrywide lender and used the their appraisal. I turned in my financials in the morning, signed loan docs in the afternoon, and it funded and closed the next day.
I don’t know if it has occurred to today’s lenders besides Caliber that there could be a potentially-large niche market of sales that need a quick close.
Think of the auction format? The current-day auctions by realtors include a regular escrow. But auctions are planned well in advance – they could include a 5-day close and move in the next weekend as a perk.
Jim,
Where do you see rates in the the coming years. We have had sub 4 rates since 2008, its hard to see 30 yr fixed at 4.25%. Some economists are saying
Mortgage loan of $200,000 (30 years fixed):
Currently: 4.2 percent — $978 per month.
2015: 4.4 percent — $1,002 per month.
2020: 6 percent — $1,200 per month.
2030: 6 percent — $1,200 per month.
I guess it is all speculation at this point.
I’ve adjusted your loan amount to reflect a coastal bias, but it’s still not that much of an increase in monthly payment between rates:
Mortgage loan of $600,000 (30 years fixed):
2015: 4.4 percent — $3,005 per month.
Currently: 4.2 percent — $2,934 per month.
2020: 5 percent — $3,221 per month.
2030: 6 percent — $3,597 per month.
Buyers who qualify for $3,600 in monthly payments are making at least $10,000 per month for income. They aren’t going to let a couple of hundred dollars get in the way of making the deal.
What would make a difference, if they happen:
1. Rich people stop moving to San Diego (unlikely).
2. Animal spirits go away, and homeownership falls out of fashion.
3. Boomer liquidations (estate sales) ramp up significantly.
4. Catastrophic events.
But I should qualify my opinion – I’ve never seen a long-term rate increase. I got into the business when rates had just tumbled down to 13%, and I thought I hit the jackpot – I couldn’t wait to get started. It’s been all gravy since. (except for Jan. 1994 when rates hit 7%, went to 9% by January, 1995, only to drop back to 7% by 1/1996).
http://www.freddiemac.com/pmms/pmms30.htm
But back in 1985 we were selling Pacific Beach bungalows four blocks from the beach for $125,000. With 20% down, your payment was $1,106 at 13%.
$3,600 is the new $1,100?
Rates go up quickly, and go down slowly. I think we could easily see 5% by summer – it’s not that far off now, and Trump is a loooooose cannon. But like you said….
I guess it is all speculation at this point.
One thing that used to exist but I suspect no longer does is the ability to assume a mortgage, at a lower interest rate. This was done a lot during the late 1970s into the mid 1980s. So you kept the existing first, and got a second to pay for the appreciation of the house and the part of the first that may have been paid off. (only really worked if the mortgage had 10+ years to run)
Based on this article I read, FHA based loans are assumable:
http://www.washingtonpost.com/wp-dyn/content/article/2010/02/18/AR2010021806648.html