Blog with MAE Capital

By now you probably have heard that interest rates have risen to a 20-year high, but how exactly is this affecting Real Estate sales and prices?  The Federal Reserve (the Fed) raises interest rates to slow demand for goods and services as with higher interest rates things cost more over time.   The Federal Reserve does not directly affect mortgage rates as the rates the Fed control are only the rates that banks borrow from the Fed.  This makes the cost of money to banks cost more so Banks raise their rates to the consumer to cover the increased costs to them.  Since consumers get loans from Banks to buy cars, homes, consumer goods, and services the costs for all of it go up.  In the mortgage arena, we have seen rates go from the low 3’s in January of 2022 to the low 7’s currently.

It should be obvious that a consumer will be able to buy less of a home in a high-interest rate environment, but home buyers don’t really understand how much it actually affects their buying power.  An example would be a couple who has been making an income of $100,000 combined with a normal debt load of a car payment of $500 a month and student loans of $250 a month.  This couple could afford a house with a 3% mortgage rate and 5% down at $561,000 sale price.  At a 7% interest rate the same couple can now only afford a house priced at $356,000.  This a $205,000 difference that has occurred in less than a year.  This will hold true when qualifying for  auto payments, business loans, and all loans to buy goods and services.  

So with the diminished buying power of potential home buyers, you would think that Real Estate values will go down to accommodate the higher interest rates.  You would be right in your assumption.  This holds especially true in the higher priced homes where the people that were qualifying for a million-dollar mortgage can now only qualify for a $700,000 mortgage.   Home sellers are having to come to grips with the fact that their home is not sellable at the same price it would have been a year ago.   With older folks looking to retire in the next 5-10 years they are seeing the value of their Real Estate portfolio go down, and this may hold off their plans for retirement and holding on to their long-term jobs not making room for younger folks to fill the gap.  Furthermore, the older generation has seen this before so they will be extra cautious with their money going into retirement and possibly not selling their family home to downsize for retirement as they may have originally planned.

The higher interest rates are pushing Real Estate values lower and this is making investors worried to the point they are holding back investing in Real Estate taking out a whole segment of Real Estate Buyers.  As prices decrease you will be seeing appraisals come in lower-than-expected making selling a house more challenging when the sale depends on an appraisal.  Those particular sales may fall through if sellers are not willing to lower their prices and eventually, if they need to sell, they will have to sell at a lower price.  If interest rates continue to go up, and it is looking like this will be the trend, prices will have to continue to go down to accommodate those that can no longer afford to buy in the same price range as the lower interest rates would have allowed them to.   The higher rates thin out the potential pool of home buyers as their buying power has diminished and those folks looking to move up by selling their existing home and buying a bigger one have dried up as well.  

From a lending aspect, as rates rise, lenders know that the home values will be decreasing so the appraisal is going to be a much more important part of the transaction.  FNMA and FHLMC will be cracking down in different markets where they know the prices are softening faster than other parts of the country, typically in higher-cost areas like California.  Since MAE Capital Mortgage also does Private Money lending, we are seeing private individual investors who actually lend their own money to others, tighten up their requirements as well.  This means less available funding for fix and flip programs, After Repair Value (ARV) programs, investor buy and hold programs, commercial funding, and more.  Talking about commercial funding where that market has been killed essentially by COVID and Amazon coming in to fill the gap, has gotten even worse.  As investors see the rates go up, they are less likely to buy or lend their money for Real Estate of any kind.  

To conclude, higher interest rates make it more difficult for home buyers to buy homes that fit their needs.  High-interest rates make home values have to come down to be able to sell their homes.   Higher interest rates make the desire to invest in Real Estate and Real Estate Notes and Deeds a whole lot less.   Higher interest rates make commercial lending even worse and make commercial values continue to decline.  So, all in all. higher interest rates are not good for Real Estate values, resales, investments, and rehabilitation of real estate.   If you are a potential buyer of Real Estate, you need to make sure your offer is a bit lower than the current market supports as prices will continue to fall as rates rise.  If you are a potential seller of Real Estate, do it now before rates go even higher and be flexible in looking at lower offers, if you are not flexible you will not be able to sell your property in this crazy Real Estate market.   On the bright side if you are well qualified first-time home buyer it should not matter to you what rates are so long as you can afford the payment associated with the house you want to buy.  As a first-time homebuyer, you now have more inventory to choose from and if you buy now and interest rates continue to go up you have a low mortgage and an affordable payment, when interest rates go down in the future you can always refinance to the lower rate.  So don't be afraid of rising interest rates as there is no perfect time to buy real estate but what I have seen over the long run owning is far better than renting so do it now and join the club of home ownership and let MAE Capital help you with buying your home and financing it as when you bundle with us you get perks like money for closing costs and an easier experience.  

Posted by Gregg Mower on November 18th, 2022 10:10 AM

photo via Pexels

Debt Management Tips for First-Time Home Buyers


Are you planning on buying a home within the next year? Now is the time to start managing any existing debt so you can improve your debt-to-income ratio and boost your credit score. While you don’t have to pay off all of your debt before buying a home, do what you can to get your financial house in order before taking on more debt. The last thing you want is to become house poor! Here are some debt-management tips to help you prepare for a home purchase in the next 6-12 months.


Home Buying Steps for Business Owners


If you own your own business, you may have to take some extra steps as you prepare to buy a home. For example, consider forming an LLC to protect your personal assets from business-related debts or lawsuits. This will keep your new home safe from creditors! LLCs also enjoy tax advantages and management flexibility that can make it easier to grow your company. Plus, when you file an LLC, your business will seem more credible to mortgage lenders when it comes time to buy your new home. Check specific state regulations around forming an LLC so you know what to expect.


Cut Your Spending


If you want to pay off a lot of debt quickly, one of the first things you should do is reduce your spending. MoneyUnder30 recommends against creating a strict household budget and tracking every dollar you spend. Instead, set up a system that tracks all of your spending automatically, like using a single debit or credit card for everything. 


Consider allocating yourself some money to spend on personal expenses, like a dinner out or a new clothing item. For example, you could set aside just $100 a month to spend on treats for yourself. Rewarding yourself for your spending cuts is a great way to maintain your motivation.


Make a Debt Reduction Plan


People use all kinds of different methods to pay off debt. Look into your options and choose a debt repayment method that will work best for you. For example, you could start by paying off either your smallest loan amount or your debt with the highest interest rate. These methods are known as the debt snowball and debt avalanche, respectively. Both of these methods can boost your confidence and increase your sense of control over your debt, encouraging you to continue down the same path.


Transfer Your Debt


If you’re paying a lot of interest on your debt, consider transferring your remaining balance to a line of credit with a lower interest rate. This will make it easier to pay down your debt. For example, you’ll typically pay a much lower interest rate for a line of credit than for a credit card or personal loan. A line of credit can also be useful for consolidating several loans into one. Just use the money from your line of credit to pay off all of your other debts, then you only have to focus on making one loan payment each month.


Land a Side Gig


Bringing in some extra income will help you pay off debt more quickly. Consider picking up a side gig for a little while until you’re happier with your debt situation. Look for a part-time job in town, drive for ride-sharing companies in your free time, or offer professional services remotely on a freelance basis. There are countless ways to make money on the side of your full-time job!


If you’re planning to buy a home within the next year, start preparing your finances now. Don’t let your existing debt get in the way of your homeownership goals! Make a plan to start paying down your debt now so you can feel confident in your decision to become a homeowner in the near future.


Are you looking for your dream home? MAE Capital Real Estate and Loan can help you find an affordable mortgage! Call today so we can discuss you

Article was written by: Suzie Wilson

Posted by Gregg Mower on June 7th, 2022 10:26 AM

This subject is a little uncomfortable for most people.  When the Bank tells you that you don’t qualify for the loan you have applied for it can be very frustrating.  If the Bank tells you No not only do you feel defeated you are also left feeling embarrassed.  So, what do you do; do you just stop trying, or quit?  Or do you move on to alternate plans or search for different options from different sources?  We are going to cover the latter and what you can do to be proactive in obtaining financing for a home or an Investment property. 

First, we need to determine why you were declined by the bank.  Was it due to bad credit or credit that didn’t meet this lender’s standards?  Was it due to the fact you did not have enough money to put down?  Was it because you could not show enough income, on paper, to qualify? Or a combination of all of these?  These are common issues when trying to qualify for a loan, but they can be overcome in most instances.  In order to fix the problem, we have to first identify it and that is usually done by analyzing your financial paperwork such as your credit report, pay-stubs, bank statements, and Tax Returns to determine where the problem lies.   Then we put together a plan to fix the problems.

Let’s start with the Credit and if you were declined due to poor credit.  If you have applied for a home loan and the lender has declined you for poor credit we must look at what that lender’s credit score requirement is.  If the lender will not approve loans for people with credit scores less than 640 or 620, 600 or lower then we have to see exactly what you credit score is and that lender should be able to provide you with the credit report that they ordered.  The reason this is important is that a lender’s credit report is different than the free stuff you can get online like Credit Karma or a service like this, not to me3ntion if too many people pull your credit it could hurt it even further.  A lender’s credit report takes into consideration the 3 major credit reporting bureaus and merges the data into one report that has all 3 credit scores.  A lender will look at your middle score or if you are married, they will look at the low-mid score of the two people.  It is important to know that there are many ways to view a credit report and how to present it to an underwriter, who will make the decision on your loan.  If you are the bread winner in the family and your spouse has the poor score that is dragging you down, you might try applying as sole and separate and adding your spouse to the title after the loan closes. Or you could look to the reasons for the bad credit and see how hard it would be to fix it and how long it would take to fix it and if the transaction you are in today could be stretched out long enough to get it fixed. If your scores are too low for the lender you are with there may be other lenders out there that will take the lower scores.  At MAE Capital Mortgage we are a Broker so we have many lender’s we deal with, and we know what lenders will take the lower credit scores.  We also show you how to fix your credit and tell you how long it will take.  One option might be an FHA loan as many lenders we deal with will go down to a 580 or even as low as a 550 credit score.  If you have a large down payment and poor credit, we have sources that can fund that with a little higher interest Rates.  There are ways to help and we can surely show you the way.

If your lender has declined you for not enough money to buy a home, there are ways to overcome this as well.  We would have to look at the home or property you are trying to purchase to determine what type of financing would fit the Real Estate you are trying to buy.    If you are trying to buy a single-family home and you are going to occupy the property as your primary residence, we again might look to an FHA loan as you can get into a home with as little as 3.5% down.  With an FHA loan you could also use a gift from a family member, or employer for that 3.5%.  This option helps our clients in many situations that they didn’t believe they had enough money to buy a home.  If you are looking to buy an investment property and you don’t have enough money for the down payment there are option for this as well.  You could negotiate with the seller to carry a second mortgage and you could buy an investment with as little money as $0 down.  This would be coupled with a non-traditional loan or a Private/Hard money loan, but it can be done.   There are also down payment assistance programs that come in an out of the market that you may be able to qualify for as well for a single family owner occupied home.  So, don’t always looks to the lack of money as the deterrent to purchasing a property.

Another common problem when trying to qualify for a loan is the lack of provable income.  A lender may have declined you for a loan due to the fact that your “ratios” are too high.  This is a lender’s way of telling you that you don’ make enough money to qualify for the loan products they offer.  A ratio is the mortgage payment with taxes and insurance and your monthly bills added together then divided by your income that you show on your tax returns, pay-stubs, bank statements or a combination of all.  Most traditional financing will require you provide Pay-stubs and your Federal Tax Returns to determine your income.  This doesn’t always work for people as income can be subjective especially if you are self-employed.  People try hard not to owe the Government taxes at the end of the year and for folks that are self-employed can, and do, show more deductions for the expenses of running a company or their personal business’.   This is well known in the industry, but many lenders don’t have any other options for those folks that write off too much on their Tax Returns.  At MAE Capital we have several options for those that can’t qualify for a traditional loan with Tax Returns.  The most popular is the Bank Statement Loan that uses the deposits made by the borrower each month to determine what they actually make.   By averaging the deposits over the last 2 years we can see if a borrower is making enough money to actually qualify.  Another type of loan that will not require Tax Returns is the W2 only loan.  This loan will use your pay-stubs and your W2s but will not use your Federal Tax Returns.   The W2 only loan will help those that make a W2 wage but may write off too much on their Taxes to qualify for what they want.  At MAE Capital Mortgage we offer both of these loans from a variety of lenders across the country.

If you are an Investor and the Banks have turned you down or they just take too long, we have great options for you.  Our sources of Private Money Loans or Hard Money Loans are second to none.  Private money loans allow borrowers with 20% or more down to qualify without providing proof of income.  Private Money Loans for Investors will also allow for poor credit.  If you are an investor and the Banks have said no look no further, we can help.  Learn more on our Private Money page.

 You may have a combination of the above issues and there are ways to deal with your problems.   If you simply can’t show anything and have bad credit and no money, then it may not be the time for you to purchase.  This is not the end; however, you may simply need a plan to work towards.  We work with folks every day to plan for their future.  Getting into a home or buying a piece of property takes planning and guidance and that is our function.  The American dream should not be closed to those that do things a little different or don’t work inside the “the box”.  We are here to work you through the maze of financial options.  At MAE Capital Real Estate and Loan we have the ability to work with all types of borrowers and home buyers and Investor’s.  Call us today to get qualified 916-672-6130.


Posted by Gregg Mower on January 29th, 2019 2:14 PM



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