Isaac Newton, the 17th century English Mathematician, famously said, “what goes up, must come down.” For most of 2022, the interest rate environment seemed to defy gravity and Newton himself, as rates rose with seemingly no signs of coming down.
As I’ve discussed here, the main culprit for this was inflation. As inflation rises, rates follow and vice versa. Inflation reached a 40-year high this year and as a result mortgage rates rose at a pace never before seen in our industry. But as it turns out, this guy Newton actually knew what he was talking about – and we’re ending this volatile year with rates dropping almost a full percentage point over the past 6 weeks (as of Dec. 15th).
So what can people expect of the mortgage market as we turn the calendar from ’22 to ’23 and what types of opportunities can people take advantage of? Great question, thanks for asking 😊. Let’s dig in.
Last Bit on this Whole Inflation and Interest Rate Thing
Once a month, the Consumer Price Index (CPI) figures are released which measures inflation on the consumer level. When the number is released, it replaces the number from a year earlier, to show an updated 12 month look at inflation. As an example, when the inflation reading for November came out, it replaced the reading from November of 2021. When the December reading is announced, it will replace the December number of 2021. And so forth. The last two readings, for October and November, both showed that inflation dropped and as a result, we’re seeing rates follow. I can’t predict where rates are going, but the indications are showing that it will be a more stable and less volatile year than what we just had.
A Million Dollars Ain’t What it Used to Be:
Mortgage loans are broken up into three categories: Conforming, high balance and jumbo loans. And these categories are determined by loan sizes. Every year, these limits change up or down, so they are in-line with home prices. And this year, they jumped up. For 2023, the conforming loan limit increased from $647,200 to $726,200. A high balance loan amount this past year was any loan between $647,201 and $970,800 – and that range is now $726,201 to $1,089,300. And $970,801 and up, used to be considered a jumbo loan, but now it’s $1,089,301 and higher.
Who cares though, right? Why does this matter? This happens to be really big news. The reason is because there can be a change in rates between the different limits, but more importantly, the requirements to qualify for a loan vary greatly between the limits – specifically between jumbo loans and conforming/high balance loans. To qualify for a jumbo loan, more documentation is often required, the debt-to-income ratios are more stringent, the loan-to-value ratios are stricter, and the overall loan is a bit more scrutinized. As a result, if someone wanted to borrow $1M in 2022 but couldn’t qualify for a jumbo loan, in 2023 that $1M will no longer be jumbo, and it’ll be easier for that client to qualify.
Covid was Almost 3 Years Ago:
What??? I know, right? In light of Covid, due to changes in one’s financial situation, from changing employment, having a gap from one job to the next, starting a new company, missing debt payment which impacted credit scores, etc. it was challenging for many borrowers to qualify for a mortgage. Now that we’re further removed from Covid and the 2022 tax returns will be filed for a year that didn’t include lockdowns or major disruptions due to Covid, steadier and more stable employment and incomes will help those who previously couldn’t qualify for a loan, qualify in 2023.
What Am I Seeing?
Our breadth of products and lending options puts us in a position to see many types of residential mortgage loans. Here’s a quick rundown of some of the situations I’m seeing right now:
First time homebuyers – I have clients in their mid-20’s to late 30’s who are simply tired of paying rent. From an engineer at google buying a $2.6M condo to a self-employed photographer buying a $550K coop, we’re able to help guide first time homebuyers through the process.
Doctors – we have a very aggressive doctor loan program where we can lend up to 100% financing up to $1.5M, 95% financing up to $2M and 90% financing up to $2.5M with none of these loans having private mortgage insurance (PMI). We have several doctors taking advantage of this program right now.
Coop Breakthroughs – I have two separate clients who purchased coops last year and they’re each buying another unit in the same building. In one case, a client is buying the unit next door and in the other, the client is buying the unit directly below his. In both cases, they will be combining the units into one unit which is known as a coop breakthrough.
Multi-family Homes – Two-to-four family homes are common in certain parts of Manhattan and Brooklyn and I always have clients who are either looking to live in one unit and rent the others out OR those who are looking to rent all of the units out and use the property solely for investment purposes.
Self-employed Borrowers – The mortgage process is not kind to business owners and self-employed people. Luckily, we have in-house programs, from bank statement programs to asset depletion loans and so much more, to help self-employed people who can’t qualify for a traditional mortgage.
This is just a sample of the types of loans I’m seeing right now, and the types of lending options we can offer continues to expand and grow. Never let someone tell you that you’re not financeable – let us tell you that. We’re constantly surprising real estate agents, attorneys, and clients with the types of loans we’re able to close, so please don’t hesitate to reach out.
Thank you for reading and I’d like to wish everyone a happy holiday season and a Happy New Year. I hope this year brings nothing but health, happiness, and success your way. (And lower interest rates wouldn’t hurt either 😊).
Best,
SN
Scott Nadler
Vice President of Lending
CrossCountry Mortgage, LLC
C: 973.769.8180
scott.nadler@ccm.com
Personal NMLS385124
Branch NMLS1601092
Company NMLS3029