By Douglas Katz – 01/05/2023
Well, we are officially in the new year and the mortgage industry is expected to see some changes that can impact potential deals. Because divorcing borrowers already have complex situations, couples facing a split should pay special attention to the changes both good and bad. Here are some highlights that we know of.
Cost of credit reports going up.
Cash-out refinances becoming more difficult and costly to acquire.
All 2023 loan limits are in effect and they are higher than last year.
The cost of credit reports is going up. Up in this case meaning multiples of the current cost. Although not specifically a lending thing, it is a core component of the process. I would expect most lenders to pass this cost onto the consumer who will see their costs rise. Additionally, rescores and other credit related steps that can sometimes be part of the process and bear a cost. These too could and I expect would be passed onto the clients, especially when borrowers are exceptionally rate conscious and profitability has already taken a hit with lower loan margins and less production.
Cash Out Refinances
Loan transactions where a homeowner is accessing their equity are going to get more difficult and expensive.
Last year, Fannie Mae and Freddie Mac announced increased add-ons for this loan type. This basically means that consumers will see higher rates, closing costs or both when they tap their equity in a refinance. Many divorce deals fall under this category due to scenarios that do not fall under equity buyout classification. Because this can be a tight box, you should NOT do anything real estate related to include getting a home equity loan (HELOC) as that can shift the classification later down the road. I recommend talking to a qualified expert like the Divorce Housing Pro or a Certified Divorce Lending Professional (CDLP) before doing anything.
Before you can access equity, you need to own a home for a set amount of time. In most cases for conventional financing, this is 6 months. In 2023, expect this to increase to a full year. This is a big deal for several groups.
- Rehabbers – There is a segment of the buying population who use their real estate knowledge to acquire properties at a low price and put in sweat equity to realize their gains. This is still a sound approach, BUT the timeline to tap the equity will shift by 6 months. In some cases, this can deep six a plan.
- Investors – A subset of the previous bullet, this group acquires specifically to flip. In the past, they were able sometimes use conventional programs, but many now will need to exclusively use hard money and other financing specifically designed for investors.
- Homeowners who need to tap equity before the seasoning period. The main place that I expect to see this is as a Certified Divorce Lending Professional in my divorce practice in cases where the couple bought the house just before splitting. Yes, before you ask, this happens more than you think. In these circumstances, any agreements pertaining to real estate need to take this required timeline into account. As I stressed with a previous bullet, I recommend talking to a qualified expert like the Divorce Housing Pro or a Certified Divorce Lending Professional (CDLP) before doing anything.
This is not new per se, but the conventional and VA announcements came out late last year with FHA limits announced this week. What is of note is that this will be the first buying season under these limits. The real estate and lending end of 2022 was anemic with rising rates and dropping prices. This market could be very different with an improving rate environment and more reasonable pricing. These new limits should help both sellers and buyers. Sellers can price higher while still remaining in conventional loan territory for their buyers. Buyers, specifically those who were at the high end of the last loan limits, can now get better terms for everything from rate to minimum down payment.
This by no means an extensive list and I would expect more changes. The key thing to remember is that last year’s mortgage market, heck even last week’s mortgage market, can be different from the market that you are in when you need to borrow. As long as you stay informed and get the right person to help you with the process including adjusting to the ever-present changes, you will be fine.
From Freddie Mac:
While mortgage rates have resumed their decline, the market remains hypersensitive to rate movements, with purchase demand experiencing large swings relative to small changes in rates. Over the last few weeks latent demand has been on display with buyers jumping in and out of the market as rates move.