By Aryne + Dulcinea, April 1, 2019
By Aaron Nawrocki, Capital M Lending
Across Oregon, and the Portland market in particular, there has been a wave of rising home values and declining affordability. Buyers face more challenges in qualifying, and higher mortgage payments are testing buyers’ monthly budgets. As in the past, lenders are coming up with non-traditional mortgages & lending solutions designed to help buyers qualify for more home, even if their tax returns or verifiable income do not support the mortgage payment. It should be noted that these programs to not help the buyers make the payment, just qualify for the larger mortgage. Sounds a lot like 2005, doesn’t it?
Currently, these mortgages represent a very small percentage of the total mortgages originated. They are also reported differently to regulators and subject to greater scrutiny. Although financial memories tend to be short, it seems unlikely that these loan products will lead to any type of 2008-style meltdown. They just aren’t that prevalent and are unlikely to become so. What’s more likely is that individual consumers will be harmed – and likely the most vulnerable. There’s a saying in financial circles that “rich people don’t buy lottery tickets.” That means that the folks taking the most risk are typically those that can least afford it.
In addition to the mortgage types mentioned above, there is a new product that claims to actually help homebuyers borrow more with a lower monthly payment. If you have a lot of equity in your home, you’ve likely received multiple mail solicitations offering a payout or “investment” in return for sharing in your home’s appreciation when you sell. Typically, the “investor” is offering a cash payout of 10% – 25% of the value of your home and no monthly payment is required. That would put $25,000 – $60,000 in the pocket of the homeowner with no change in monthly cash flow. Because the payout is considered an investment in return for partial ownership rather than a loan, the transaction is not subject to the standard mortgage disclosures that protect consumers. I’ve read the actual paperwork and it is confusing.
No monthly payments sounds awesome. It should not be assumed that just because there are no monthly payments that this product is a low cost source of funds. The investor is repaid with a percentage of the value increase when the home is sold and shares in any loss if the value declines (subject to caveats). It’s typically 30-70% of the appreciation, which could make the effective annual cost as high as 20%. If my Dad wrote this article, he would say something like: “The time you pay the most is when you think you’re getting something for free.”
One of the only positive byproducts of the financial crisis was the standardization of mortgage products. Lenders are required to make sure that borrowers can pay back the mortgage and prepayment penalties are nearly outlawed. This has made it easier for borrowers to avoid catastrophic errors. As the market changes and non-traditional mortgages & lending options become more complex, it is important to make sure you understand everything you sign. Seek counsel from professionals you respect and choose a lender you know and trust. And if you get an offer that seems too good to be true – remember what my Dad says – it probably is.
Aaron Nawrocki has over 20 years of direct experience overseeing mortgage and loan processes, working to provide clients the market insight and lending expertise required to make informed decisions.
About Us:
Over the course of their professional partnership, Aryne + Dulcinea have helped over 200 clients prosper in their new lives. During this time, they have prided themselves in their top-notch selling abilities, with homes outperforming market standards, consistently exceeding list price while most of their listings sell in under 7 days. Whether you’re looking to buy or sell, Aryne & Dulcinea will work in collaboration to guide you in investing in your future and reaching your real estate goals.
Aryne + Dulcinea
Earth Advantage Principal Broker | Earth Advantage Broker | ADU Specialists | OR
She/Her
Aryne + Dulcinea are full-service, high-producing agents, who understand how to navigate the unique challenges facing the Portland real estate market. The secret to their success is in their professionalism and complementary skill sets. In 2012, Aryne + Dulcinea saw an opportunity to combine their creative and technical wisdom to create a values-driven, full-service agency unlike any other. Expert negotiators and project management mavens with a strong background in creative marketing, Aryne + Dulcinea serve as fierce advocates for their clients. Their passion for real estate relates closely to their commitment to the Portland way of life, which entails a dedication to sustainability and appreciation for all things local. As Earth Advantage Brokers and ADU Certified Specialists, Aryne + Dulcinea are savvy in all aspects of alternative living practices—from versatile housing additions, green building practices, and revenue-generating strategies. Whether you’re looking to buy or sell, Aryne & Dulcinea will work in collaboration to guide you in investing in your future and reaching you real estate goals.
Aryne greets working with clients throughout Portland with open arms. Licensed since 2005, she appreciates the ever shifting desires her clients have as they move through their real estate goals. Investigative genius on her side, Aryne will strive to bring you the results you desire. When not working for you, Aryne is a constant cheerleader for her son and daughter’s pursuits on the basketball court and on the ballet stage! She practices yoga, hikes, loves to walk and explore Portland neighborhoods, reads, and delights in soaking up everything Portland has to offer!
Dulcinea thrives on working with clients with a range of real estate goals. Oregon born, with a design and an award-winning professional background, Dulcinea is steadfast when it comes to working for her clients and has a keen eye for properties that best serve client objectives. Licensed since 2013, Dulcinea works in and around Portland. A mother of two and wife to her high school sweetie—in her free time she stays busy with her family, travel, community activism, exploring the outdoors, curating art shows, and dreaming big!
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