March 10th, Market Update and Mindset Call with Nikki, Cari and Angie

Mortgage rates are holding in the mid to high 6% range with positive indicators from the bond market and expected lower CPI numbers suggesting future rate decreases. Property taxes on new construction homes follow a complex pattern from lot tax to full assessment that significantly impacts mortgage qualification and payment changes over the first few years of ownership.

• Current mortgage rates remain in the mid to high 6% range
• Improving bond market and expected lower CPI should help push rates down
• Florida considering eliminating property taxes completely

More on New Construction - 
• New construction initially has "lot tax" on bare land only
• Lenders must qualify buyers using estimated full tax amounts 
• In Arizona, some lot taxes are $0, requiring lenders to use estimated future taxes
• Minnesota uses an interim tax amount between lot and full tax during construction
• Property taxes will increase substantially in first few years of new home ownership
• Both lenders and title companies provide crucial tax information for qualification
• Transparent communication about future payment changes is essential for buyers

Reach out to us anytime if you have questions or need assistance with your mortgage or real estate needs.

Chapters

• 1:12 Market Update Introduction
• 1:33 Mortgage Rate Outlook
• 2:30 Property Tax Fundamentals
• 3:46 New Construction Tax Specifics
• 7:08 Payment Transparency for Clients
• 8:05 Lender & Title Responsibilities
• 9:05 Value of Quality Partnerships

Transcript

Speaker 1: 0:37

All right, welcome everyone to the Monday Market Update Call. It is the 10th of March and, yeah, lots to cover. So, nikki, I'll let you take it away.

Speaker 2: 0:48

Awesome. Well, happy Monday everyone. And just so everyone knows I'm not driving, I am just riding passengers, so we are perfectly safe to continue on with the call today. I wanted to just update you. As mortgage interest rates are remaining in the mid to high sixes right now. We're seeing some improvement in the bond market which are helping to drive those interest rates down. We are going to be seeing this week some CPI numbers come in, which is, you know, your consumer price index. They are expecting those to go lower, which should help the bond market even further to kind of push those interest rates down a bit. But all good signs. Jerome Powell came out on Friday and did talk about the Fed being a little bit patient and a little bit more conservative, but all the information, all the numbers that are coming in, are indicating that they're going to have really no choice but to continue to lower those interest rates. So what are your predictions right now? Is that we kind of keep an eye on it and see what happens? That's an extremely early prediction, but right now everything is looking good from that standpoint.

Speaker 2: 1:54

I just wanted to talk a little bit about property taxes and some of the things that have been going on in different states and specifically property taxes as they pert the things that have been going on in different states, and specifically property taxes as they pertain to new construction property. So, as far as property taxes go from, as everyone knows, that property gets assessed every year and then there's a certain tax amount and most of the time that tax amount just keeps going up every year. Well, there's a couple of states, one in particular in Florida, that's talking about doing away with property taxes and gathering income for the state in a different manner. So when the so like DeSantis, is talking about eliminating property taxes in Florida, well, what this means for the housing market obviously is that more affordability from a home standpoint. No-transcript I also wanted to bring up because I've had to deal with this actually three times last week with new construction properties and how they are taxed.

Speaker 2: 3:11

So there's a couple different ways that, as a lender, we have to look at the property tax information. As we all know that when you have a new construction property, initially what you're usually paying is what's called lot tax, and what lot tax is is just the tax on the bare land and the actual tax value or the actual assessment for property taxes usually doesn't happen until a year or two later, after that home is constructed and built. Well, there's been some changes that have been happening lately, particularly in certain states that I want to kind of touch on. So in the state of Arizona, when you have a property that has lot tax, a lot of times that lot tax is actually zero dollars. Well, us, as a lender, we cannot use zero dollars to qualify you for your property tax, so we have to use what's called the mill rate, and what the mill rate says is it's the average, it's what the actual tax rate is for a property assessed value. But we all know it does get a little bit complicated because your purchase price isn't going to match your assessed value either. But as a lender, we want to be conservative. So normally what we do is we take the purchase price, we multiply it by the mill rate and divide it out by 12. And what that tells us is what the estimated property taxes are for that property Once the full tax takes effect. That's what we use for qualifying the mortgage.

Speaker 2: 4:35

Now, when we get to the point where we say, okay, we're ready to close and we want to know what the client's actual payment is going to be. Most of the time we can adjust that property tax amount down to the actual amount so that the escrow fund for the property or for the borrower is not overfunded. So for example, let's just say the mill rate came out to $300 a month for property taxes but the actual lot tax was $50 for the entire year. Towards the end of the transaction we would take that $50 and have that $50 for the year be part of their payment, not the $300 a month. So there are some adjustments that we make. When that lot tax is actually zero we cannot use the $0 amounts, we have to use something. So we have to do some calculations and talk to the county and it can get a little bit complicated as far as to what that actual property tax payment will end up being. But most of the time we can drop it down to that lot tax amount and use that for the actual payment.

Speaker 2: 5:34

In Minnesota, contrastly, what Minnesota does now is they have, while the home is being built, they will do a unimproved or a estimate of the yearly tax for that property during the time that it's being built. So it goes from lot tax to an interim tax amount to full tax amount and what we use, based that payment on, is that interim tax amount. So the in between the lot tax and the full tax will use that interim amount for the actual mortgage payment that the client is making. Now there's a lot that goes into these property taxes, a lot that goes into the assessment.

Speaker 2: 6:11

But just from a lender perspective, purely for clients who are looking at new construction properties in particular, it's important that the lender can qualify them on the full tax amount, even if that payment gets adjusted over time throughout the loan process.

Speaker 2: 6:27

So a lot of times when we're qualifying clients, obviously we want to qualify them on their what the actual property taxes are. But we have to pay attention on new construction properties to make sure we can make those appropriate adjustments for the property tax. So it's just an important piece of transparency for the client when we're working with them, if they are purchasing new construction, to understand like, hey, your payment's going to look higher throughout the loan process, but it's actually not going to be that high at the end of the day Eventually it will. But just to include that transparency part and important for realtors to also understand and inform their clients that if they are looking at new construction properties, your payment is going to increase over the first couple of years, based on those property taxes alone. And just something for them to keep in mind so they don't overextend themselves at the beginning.

Speaker 1: 7:13

Yeah, and for the agents listening to the podcast or the replay on YouTube, is it the lender's full responsibility to figure that out, or who should the agent lean on in order to get those numbers and to best understand and present that to the clients?

Speaker 2: 7:30

Yeah, so it's a lender's responsibility to understand what the mill rate is and to understand what that qualifying payment needs to look like.

Speaker 2: 7:36

And by qualifying payment, I just need the numbers that we need to use from a debt-to-income ratio standpoint in order to qualify for the loan, in order to approve that borrower, because we want to make sure that the borrower can continue to make their mortgage payments, so we want to make sure that, at the full tax, they'll be able to make those mortgage payments. So that's part of it. The other part of it is we also work with title, because title has information about on improved taxes. They have information about any special assessments. They'll have information about those property taxes that are important for us to know for qualifying as well. So it's something to lean on title and your lender for when it comes to what those payments are going to look like and any information that the client wants with regard to those the client wants with regard to those Absolutely Another really key point as they all are of why who you partner with is very, very important.

Speaker 1: 8:30

So someone like Nikki, it's important that they know these things that sometimes agents might not yet know or lose sight of. So your partners are direct extension of your business. So make sure you have great partners all around. So I love that. That's so great. Good, well, wonderful, Anybody go ahead? No, I'm good, perfect, all right, lex, do you have any questions or anything you want to go over today? All right, well, everyone. Thanks so much. Nikki, appreciate your time. I know you're out traveling, so we'll let you get back to it. As always, nikki and I are here to help in any way, so feel free to reach out and we'll see you next time.