New Loan Limits

What’s one of the good things about Hawaii’s sky-high home prices?  Higher maximum loan limits!  Hawaii is one area of the country that Fannie Mae and Freddie Mac designate as a high-cost area.  That designation grants Hawaii borrowers a 50% boost in the maximum loan the two government agencies will allow.  Each year the governing entity for Fannie and Freddie, the Federal Housing and Finance Agency (FHFA), surveys housing costs across the country.  They then determine if costs have gone up or down, and by how much.  Hint, then haven’t gone down in a while.  This year they determined that housing costs increased by 5.21%.

 

For 2025, the maximum conventional conforming loan throughout Hawaii for a 1-unit property is:

 

$1,209,750.

 

What does that mean for consumers?  At that loan limit, the minimum down payment is just 5% for Fannie/Freddie loans.  If you have the income to support it, you can in theory purchase a home or condo under these parameters:

 

Purchase Price:	$1,273,421
Down Payment:	$63,671
Loan Amount:	$1,209,750
Current Rate (as of 12/6):	6.490% with zero points!
Monthly P&I Payment:	$7,638
Monthly Mortgage Ins. Premium:	$384

 

The above example is using the maximum loan amount possible using the new conforming loan limits.  It is important to note two key points:

 

• Mortgage Rates are coming down. A 6.490% zero-point rate is roughly 1.5% below the peak in mortgage rates this cycle.

 

• You don’t need 20% down to buy a home. Even with today’s crazy home prices, you just need 5% down (or less with other programs).  In our example above, you can buy a place for nearly $1.3 million with a $63,671 down payment.

 

 

 

 

Soft-Pull vs. Hard-Pull Credit Inquiries

It is great to know that consumers are now ever mindful about the importance of maintaining as high a credit score as possible.  Mindful as some are, I am receiving more requests to start the application process utilizing a soft-pull credit report.  Do you know the difference between the two types of inquiries?  Today let’s explore the differences, when each is used, and what they’re used for.

 

Consumers concerned about their credit score know that every time a creditor pulls your credit report, that inquiry lowers your credit score slightly.  The reasoning is that someone trying to acquire additional credit has a slightly higher risk.  This makes sense, but why should a consumer have their credit score drop if they themselves access their credit profile?  The answer is the soft-pull.

 

Soft-Pull Inquiry:

A soft-pull, also known as a soft-inquiry allows you or a creditor to access a “light” version of your credit profile.  Because that version of your credit report cannot be used to grant credit, that inquiry doesn’t affect your credit score.

 

If a soft-pull cannot be used to grant me the credit, why do some lenders offer that option?

 

Big national lenders receive thousands of inquiries and realize that a sizable portion of applicants will not ultimately obtain financing through them.  Many consumers inquire when just shopping for rates.  Others don’t have either the credit, income, or necessary assets to qualify.  For lenders, a soft-pull report costs about half what a hard-pull report does.  In a year, that difference could add up to some serious money.  In short, a soft-pull for lending is a tool in the screening process.

 

Here are the other times a soft-pull inquiry is used:

 

• Checking your credit score yourself.
• When you get a “Prequalified” credit card offer.
• “Prequalified” insurance quotes
• Employment verification (i.e., background check)

 

Soft-pull reports lack the detail needed to base a full credit decision on.  If a lender utilizes a soft-pull credit inquiry and you decide to proceed with financing through them, they will be required to obtain a hard-pull credit report.

 

 

Hard-Pull Inquiry:

A hard-pull inquiry is the traditional product creditors use to determine your credit worthiness.  You’ll have a hard-pull credit inquiry for:

 

• Mortgage applications
• Auto loan applications
• Credit card applications
• Student loan applications
• Personal loan applications
• Apartment rental applications

 

The hard-pull, or full credit report, will list everything – balances, payments, late payments, and the date you obtained that credit originally.  Some consumers are unjustifiably worried that because a hard-pull will drop their score by a few points, they request the soft-pull.

 

 

The Problem with Utilizing the Soft-Pull:

I’ll just come out and say it:  In almost all cases, the consumers that request a soft-pull are the ones that also want to know the maximum they qualify for.  How do I give them an accurate answer when I’m supposed to rely on only partial information?

 

A soft-pull almost always contains information from a single credit repository – Equifax, Experian, or TransUnion.  When truly reviewing a consumer’s ability to borrow we rely on a “Tri-Merge” credit report, containing information from all 3 credit reporting sources.  Why?  Because not every creditor reports to every repository.  The Tri-Merge takes information from all 3, then distills it into 1 comprehensive report.  You can’t get that information from a soft-pull inquiry.

 

 

The Paranoia of the Hard-Pull Inquiry:

As I started today, many savvy consumers are requesting a soft-pull when just at the beginning stages of applying for a mortgage.  They either don’t want their credit pulled multiple times by every lender they inquire with, or don’t want their credit pulled now, because they are months away from pulling the trigger.  Credit reports are usually good for a maximum of 90 days.  Past that, and another must be pulled.

 

If your concern is having your credit pulled multiple times, I have a suggestion and some good news.  First, once you know your accurate Tri-Merged credit score, that’s the middle one of the three, provide that information to any prospective lender.  Any lender not willing to provide you with a no-obligation rate quote based on the information you provide, is not playing on the up-and-up.  Any lender requiring you to provide your personal information for the purpose of checking your credit right at the beginning, is using your paranoia of having your credit score drop, thus trapping you, and dissuading you to move onto another lender.

 

Here's the good news.  Built into the credit scoring models is the understanding that a consumer will need to shop around when obtaining any type of financing.  All hard-pull credit inquires performed over a 14-day period are counted as a single inquiry.  That’s right, you can have your credit accessed multiple times over that 14-day period, and your credit score will be adjusted as if it were only a single inquiry.

 

I would not suggest having your credit accessed multiple times, as every prior inquiry will show up on your report.  Those inquiries will stay on your report for up to 2 years.  Depending on when the inquiry was made, your lender may ask for an explanation letter if you were actually granted credit from that inquiry.

 

When I have a client that is either concerned about their score dropping or maybe still a few months out from really needing their credit pulled, we discuss the situation.  That discussion will entail how accurate I can get with a prequalification based on limited information.  For some with few liabilities and excellent credit, the consumer can provide things such as a current mortgage statement and statements from what else they may owe.  The discussion will also focus on their current score and what a credit inquiry will do to that score.

 

Once again, any perceived issue comes down to communication.  As a consumer, express your concerns to the mortgage representative.  If they cannot address your concerns sufficiently, move on to another lender.

 

 

 

 

 

And now the week’s economic news…….

 

Investors Seeing the Light

It was a big week for economic news and despite stronger readings, investors are hopeful for stronger economic growth without the fear of inflation.  Mortgage rates finished the week with rates not seen since early October.

 

Disrupted by hurricanes and large strikes last month, the key Employment report revealed that the labor market bounced back a little more strongly than expected.  After rising by a slim 36,000 jobs last month, the economy added 227,000 jobs in November, above the consensus forecast of 200,000, and the results for prior months were revised higher by 56,000.  Average hourly earnings, an indicator of wage growth, were 4.0% higher than a year ago, the same annual rate of increase as last month.

 

The JOLTS (job openings and labor turnover rates) report also suggested that the labor market may be tightening again.  At the end of October, there were 7.7 million job openings, above the consensus forecast of 7.5 million.  This increased the ratio to about 1.1 openings for each available worker, though still down from a peak of over 2.0 in early 2022, and in line with the levels seen prior to the pandemic.  A larger number of openings suggests that companies face more pressure to raise wages to hire enough workers, making this negative news on inflation and thus unfavorable for mortgage rates.

 

Two other significant economic reports released this week by the Institute of Supply Management revealed mixed results.  The ISM national services sector index declined to 52.1, falling well short of the consensus forecast to the lowest level since February 2023.  The national manufacturing index rose to 48.4, a little above expectations, but this was its eighth straight month under 50.  Since readings above 50 indicate an expansion in the sector and below 50 a contraction, these reports reinforce that service companies have outperformed manufacturers over the last couple of years.

 

 

 

 

Next Week

Investors will continue to look for additional guidance from Fed officials on their plans regarding future monetary policy.  For economic reports, the main event will be CPI on Wednesday.  The Consumer Price Index (CPI) is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services.  The Producer Price Index (PPI), another inflation indicator, will come out on Thursday.  Import Prices will be released on Friday.  In addition, the next European Central Bank meeting will take place on Thursday.

 

 

 

Until next week….