With bidding wars de rigueur in the Hamptons and interest rates doubled from a year ago, we asked Patti Frank, Vice President and Branch Manager of GuardHill Financial Corp. Southampton, to talk about the process of getting financing these days to secure the proverbial Hamptons dream home.
You represent Guard Hill, mortgage brokerage that is often recommended to buyers in the Hamptons. Tell us about the company and why you chose to work for them?
You are correct. GuardHill is a great company to work for. We started operating 29 years ago to fill an underserved niche in the real estate market where borrowers can obtain best-in-class financing from the largest, most sophisticated lenders with the high touch service of a private bank. I have been at GuardHill for nine years, and find the culture very collegial and inclusive. Every challenge I face, no matter how big or small, is tackled in a very timely professional manner. Just take a look at the testimonials on our website. We provide exceptional service and the majority of our clients are repeat customers.
You have an incredible reputation on the East End being one of the very best in your field. But isn’t GuardHill based in Manhattan? Do they have an office here?
Yes. GuardHill is based in Manhattan and we are licensed in every state. I was recruited to join the Company in 2014. As part of the incentive, a Southampton office was established for me to build upon my already large roster of clients.
Many of the homes in the top tier are often paid for in cash. What is the price point that homes come to you for mortgages? If this isn’t correct, how does it work for all tiers: Over $10M, over $5M, under $3M, under $1M. Is there a system?
I have originated mortgages as small as $50,000 and as large as $10 million. Typically, when interest rates are low, clients who can afford to pay cash may opt to obtain a large mortgage so they can keep their money invested in other financial markets. And yes, there is a system of sorts. It works like this: The FHFA sets conforming loan limits, which change annually.
In 2023 it is $726,200 for a single family residence. Once underwritten, these loans are subsequently sold to Fannie Mae and Freddie Mac. These agencies form the cornerstone of the mortgage industry, and comprise about half of all the loan volume. The Hamptons mortgage market is unique because most loans are non-conforming jumbo loans, which receive government backing from agencies such as the Federal Housing Authority. In some cases, the FHA permits lower FICO scores and down payments, which may help borrowers purchase a home (the 2023 loan limit is $1,072,500).
I spend a significant amount of time in the Hamptons market working on jumbos. Lenders require that these larger mortgages have higher qualification standards since lenders are taking bigger risks. To qualify for a mortgage, lenders analyze many factors such as income, assets, and credit scores. A larger down payment is also required to obtain a jumbo mortgage especially if it is a second home or investment property. Jumbos also tend to have higher interest rates than conforming mortgages. There are so many different mortgage options available that it is important to work with a mortgage banker who can properly pre-qualify a borrower and find the right product that meets their qualifications and needs.
Is pre-qualifying super important to the process? What can we do to improve our chances of getting approved for a loan?
FICO score is very important. Borrowers with a score above 760 can obtain the lowest cost financing. Borrowers with low debt-to-income ratio is also important. Lenders prefer ratios below 43 percent. It is very important to get pre-qualified so you know how much you can afford. The more knowledge you have when you are shopping for a home with your realtor the better negotiating power you will have.
With all the chatter about the higher interest rates, how is this affecting people buying homes versus not buying homes?
Buying a home in any market is a highly personal decision. I generally recommend that my clients not try to time the market or predict what will happen next year, because that may not be the best strategy. If the costs of borrowed money continue to rise and cause more people to stand on the sidelines, perhaps we will see an uptick in home equity loans over the course of next year. The whims of the mortgage market remain entirely dependent on the Federal Reserve’s ability to get inflation under control. For the past two years it’s been a seller’s market.
Will 2023 favor buyers or sellers?
I predict that 2023 will be a transitional year with a lot of uncertainty. Economic worries may slightly depress buyer demand, while inventory remains limited.
Do you have any prediction about how interest rates will go for the remainder of 2023?
I expect the Fed to keep raising rates to fight inflation. With inflation, higher rates, a potential recession and geopolitical tensions, I don’t expect to see mortgage rates decline for at least another year. Mortgage rates continued their recent uptick. The average 30-year, fixed-rate mortgage was 6.50 percent for the week ending February 23, up from 6.32 percent the previous week, according to Freddie Mac. Though rates jumped the past three weeks, they are still down from the 20 year high of 7.08 percent last fall. In early February, the Fed raised the Fed Funds Rate by 25 basis points while indicating it would continue raising rates to contain inflation. I read that the Mortgage Bankers Association thinks long term rates have already peaked, and they expect the 30-year to end at 5.20%.
How’s the current Hamptons real estate market from your point of view?
I speak to real estate brokers daily about trends in the markets, and all agree, especially with economic headwinds, the market has cooled. Home prices have dropped somewhat, but not as much as many buyers are hoping for. Inventory for sale is low and has increased slightly, but as I mentioned it is still below normal levels because homeowners currently have mortgages with low 3 to 4 percent interest rates. Few will choose to sell today. Renters, it’s worth noting, may finally see a reprieve from surging prices as that market cools.
What exactly does a mortgage loan officer do? And why is it important to use one?
A loan officer works for a lender. At GuardHill I am a mortgage originator/banker. Mortgage bankers help would-be borrowers find the right product with the best terms and rates to meet their financial needs. Working with me can potentially save you time, effort, and money because I may have better and more access to a larger universe of loan products. In short, I save my clients most of the legwork, ensure a smooth and efficient process, and also help manage costs.
What happens if you don’t use a loan officer?
Negotiating the mortgage world is complex. Every bank has its menu of products they offer. A borrower may not qualify for a product offered by ABC bank but may qualify at GuardHill. My job is to know which lender offers what product and rates to meet each individual’s needs. With 29 years of lending experience, I provide the comfort of knowing that the home someone buys is optimally financed.
What’s more important: rates, fees or points?
The interest rate is the cost of borrowing money from a bank. Banks calculate the rate based on the duration of the loan. For example loans can be amortized over 15, 20 or 30 years for fixed rate mortgages, or on shorter maturities such as 5, 7 or 10 years for Adjustable Rate Mortgages. Closing costs are the fees borrowers pay to obtain loans. Examples of fees include mortgage tax, mansion tax (if the purchase price is $1M or more), title insurance, recording fees, Peconic preservation tax, appraisal and bank attorney fees. Points are a percentage of the loan amount that a borrower can pay to reduce the interest rate on the loan, or points can be fees paid to the lender for certain mortgage products.
What top factors determine if someone qualifies for a loan?
Income, credit score, assets, and liabilities.
If you’ve been denied a loan, what can you do to increase your chances with another lender?
I can help you hire a credit repair company to raise your score, advise on how to obtain additional credit if needed, or I can advise you on how much debt an individual needs to pay down to get below 25 percent usage of available credit. We can discuss assets and possible gifts they may receive from family members. I receive calls from numerous borrowers that have gone directly to a bank and have either been denied or have not received a denial or an approval and it has been months in the process. We can close loans in 30 to 45 days consistently. GuardHill prides itself on our service, professionalism and speed to closing table.
What are some mistakes that people make when buying their home?
I have gotten a number of calls over the years from clients who have not gotten prequalified prior to an accepted offer on a house they are purchasing. This is probably the biggest homebuyer error. Getting pre-qualified helps a borrower to know how much of a mortgage they can afford. Sometimes they can afford more than they think and other times it may be less. Knowledge is power when shopping for a home in the Hampton or North Fork.
GuardHill Southampton is located at 63 Main Street, Suite 4 in Southampton. For more information, call (631) 287.4522.
