So, You’re Pre-Approved for $XXX,XXX ?

Rachel and her husband Ikaika were referred to me from a great real estate agent on Kauai.  The agent told me upfront that the couple were already pre-approved by one of the big national lenders.  I work with some of the most competitive lenders in the country and almost always can beat a rate offered by those national guys or even the local banks, so I was more than happy to give it a shot to earn their business.

 

Rachel is self-employed and Ikaika has been employed full-time with the same employer for the last couple of years.  Rachel explained about her seasonal income and the business she owns with her family.  2023 was a so-so year for Rachel’s business, but 2024 was much better.  Unfortunately, because of the complexity of Rachel’s business, they filed an extension for the business’ 2024 federal taxes.

 

My first thought was to see if Ikaika could qualify on his own, just using his income.  That’s when Rachel told me that the big national lender pre-approved Ikaika for $500,000 – not taking any of Rachel’s income into consideration.

 

I then asked Rachel a very important question about that pre-approval: What property is Ikaika pre-approved for?  The answer was simple – no particular property.  The letter was very general.  That’s when I realized this should be shared in my newsletter.

 

Getting approved for a mortgage is very straightforward – it’s all math.  You earn a certain amount, you have bills you pay, you add in the proposed housing expense.  Do those expenses exceed the maximum debt-to-income ratio?

 

In the pre-approval Ikaika received, that mainland lender never asked if they were looking at condos.  Here in Hawaii monthly condo HOA fees are running around $1,000 per month.  For a 30-year mortgage at 7% interest, a $1,000 per month payment represents a loan of $150,000.  And since that national lender didn’t plug in an expense for monthly HOA, Ikaika’s $500,000 per-approval is really more like $350,000.

 

Today’s lesson is simple.  Understand what your income and expenses are.  When talking to a lender, let them know what type of property you are interested in.  Lastly keep this in mind: a pre-approval – like the general one these mainland guys give you, is not set in stone.  There are many factors that will ultimately change exactly how much you qualify for based on the specific property you are interested in purchasing.

 

 

 

 

The Fed’s 2% Inflation “Mandate”

Everyone except the Federal Reserve thinks the Fed should cut rates.  Fed Chair Jerome Powell met with President Trump on Friday in the Oval Office.  Powell pushed for clear independence from the executive branch.  He also reminded President Trump that the Fed has a 2% inflation mandate, and since inflation is over 2% the Fed needs to wait longer before cutting rates.

 

That’s all fine and dandy, except the Federal Reserve does not have a formal 2% inflation "mandate" in the legal or statutory sense.  However, they have adopted a 2% inflation target as part of their monetary policy framework.

 

Mandate is a legal term used to define the actions a federal agency is charged with.  The Federal Reserve’s statutory mandate from Congress, under the Federal Reserve Act, is to:

• Promote maximum employment
• Promote stable prices
• Promote moderate long-term interest rates

 

This is often referred to as the dual mandate (maximum employment and stable prices), with long-term interest rates seen as an outcome of fulfilling the first two.

 

To sum it all up, the Fed doesn’t need to wait until inflation hits 2%.  They can raise or lower rates whenever they like.  Unfortunately, the Federal Reserve is headed by a lawyer and not an economist.

 

The consensus amongst bond traders is that the Fed funds rate is currently 100 basis points restrictive (too high).  That equates to a full 1% in rate.  And while mortgage rates don’t follow the fed funds rate in lockstep, just imagine where we would all be if mortgage interest rates were a full 1% lower?

 

Come on, Jerome Powell!  Let’s get people into homes!

 

 

 

 

And now the week’s economic news…….

 

Inflation Eases

While it has been a volatile period, there has been little net change in mortgage rates over the past three weeks.  News about tariffs continued to influence trading this week.  The latest inflation data was right on target, causing little reaction.  Mortgage rates ended the week a bit lower.

 

Tariff headlines continued to pour in during the short holiday week, although their impact was relatively minor.  On Friday, President Trump had recommended raising tariffs on the European Union to 50% beginning June 1 due to a lack of progress on negotiating trade deals.  Before the start of trading on Tuesday, however, he had agreed to postpone the higher tariffs until July 9.  On Wednesday, a federal trade court ruled that the President is not authorized to impose tariffs under the Emergency Economic Powers Act, adding to the uncertainty about future trade policy.  On Thursday, the US Appeals Court put the brakes on that decision.  The Trump administration was given ten days to make the necessary changes to comply with the ruling.  On Friday, President Trump accused China of violating the preliminary trade agreement reached on May 12 with the U.S. in which the two countries suspended most tariffs on each other for 90 days.

 

Fed officials keep a close eye on inflation, and the PCE price index is their favored indicator.  In April, Core PCE was 2.5% higher than a year ago, down from an annual rate of increase of 2.7% last month, and the lowest level since March 2021.  Progress toward the 2.0% target of the Fed has not been easy, and this desired level has not been achieved since February 2021.  The big question is how large an impact higher tariffs will have on future inflation levels.

 

After five straight months of declines, the report on consumer confidence published by the Conference Board finally bounced back, mostly due to easing concerns about a damaging trade war.  The index jumped to 98 in May, far above the consensus forecast of 86.  Optimism increased significantly in many areas including employment prospects and the outlook for the stock market.

 

 

 

 

Next Week

Investors will continue to look for additional information about tariff policies.  For economic reports, the ISM national manufacturing sector index will be released on Monday and the services sector index on Wednesday.  The Trade Deficit will come out on Thursday.  The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation are always closely watched.

 

 

 

Until next week….

 

*** Please note that Freddie Mac publishes their weekly rate report on Wednesday mornings from data received Monday and Tuesday. 

The graph above is intended to shown rate trends, and not “today’s current rate”. ***

 

 

Reviews From Our Past Clients

With every client, we promise to provide you with a comprehensive analysis of your mortgage needs, the best service possible, and the best rates we can find.  We make it our mission to have every transaction close with our clients happy with the service we provided.  Browse through the hundreds of reviews we’ve received from our clients posted on both Google and Zillow.com, and read what they thought of their experience using Hawaii Mortgage Company.

 

 

Google Link:

Hawaii Mortgage Company Review on Google.com

 

 

Zillow.com Link:

Hawaii Mortgage Company Reviews on Zillow.com

 

 

 

Our Rate Quote System is Available to You

Our automated rate quoting system is live.  Now you can check rates and try different scenarios 24-hours a day.  Remember, it’s just a computer.  For non-standard rate quotes, such as construction, vacant land, and other specialty programs, you’ll still need to give a call.

 

Here’s the link:      https://www.hawaiimortgage.net/todays-rates/

 

 

Do you think all lenders are the same?

There is a difference when you use Hawaii Mortgage Company for your financing.  Here’s a short video telling you why:

 

https://youtu.be/c7AKQ5wa2_U

 

 

 

Broker vs. Banker?

Click the link below to get a quick lesson on why working with a Mortgage Broker will benefit you on your next transaction.

 

https://youtu.be/iH3igW5v2jE