Mortgage fees are changing under the new rules from the Biden administration’s Federal Housing Finance Agency. Because some borrowers with good credit may end up paying higher fees compared to those with lower credit scores, the change has sparked a discussion.
Among the critics is Peter Schiff, CEO and chief global strategist at Euro Pacific Capital.
During an interview posted on Schiff’s YouTube channel, the host shared his intention to buy a home but voiced concerns about getting punished if the plan goes through because of his good credit score.
Schiff’s response was, “Just miss a few payments, screw up your credit score. That will help your mortgage rate.”
Schiff, who successfully predicted the financial crisis of 2008, pointed out the issues with this change.
“This new rule encourages people to make smaller down payments than they might otherwise have made,” he said. “Normally, if you make a big down payment, you get a better rate. But now, Biden wants the better rates to go to people that don’t make a big down payment.”
While the new rule could lead to more people becoming homeowners, it does not bode well for America’s banks, according to Schiff.
“The worst part about this is that it’s going to further undermine the solvency of our banking system because banks are going to be encouraged and actually required to make more loans to riskier borrowers, which means more mortgages are going to end up in default,” Schiff warned.
To be sure, buying a house can be quite a burden in today’s environment.
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‘They Are Money Pits’
The U.S. Federal Reserve has implemented significant interest rate hikes to tame rampant inflation. And mortgage rates have gone up as well, meaning homebuyers have to grapple with larger mortgage payments.
According to data from the Mortgage Bankers Association, the median mortgage payment for applicants was $2,093 in March, up 1.6% from $2,061 in February.
Simply put, houses are not very affordable in America.
“The affordability index hit a new survey high last month, with both the typical purchase application amount and monthly payment rising on a monthly and annual basis,” Mortgage Bankers Association Associate Vice President Edward Seiler said in a statement.
When you buy a home, you have to factor in more than just the mortgage payment. Homeowners are also on the hook for property taxes, insurance, maintenance and repairs.
“Houses are very expensive, take it from me, I own several,” Schiff remarked. “They are money pits. You can’t own a home when you are broke.”
Investing In Real Estate Without Buying A House
Despite being expensive to purchase and maintain, residential real estate remains a popular option for investors. One of the reasons is that the asset is a well-known hedge against inflation.
As the price of raw materials and labor goes up, constructing new properties becomes more expensive. And that, in turn, contributes to the appreciation of existing property values.
At the same time, elevated home prices and high mortgage rates mean owning a home is less feasible. And when people can’t afford to buy a home, renting becomes the only option. This creates a stable rental income stream for landlords.
If you want to collect passive income by investing in residential real estate, purchasing a house isn’t the only option. There are real estate investment trusts (REITs) that specialize in apartment buildings and single-family rentals. And if you don’t want the volatility associated with publicly traded REITS, there are also fractional investment platforms that allow retail investors to invest directly in real estate with as little as $100 through the private market.
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