Mortgage fees are changing due to new rules from the Biden administration's Federal Housing Finance Agency. Because some borrowers with good credit ratings may end up paying higher fees than borrowers with poor credit ratings, the change has sparked debate.
Among the critics is Peter Schiff, CEO and chief global strategist at Euro Pacific Capital.
In an interview published on Schiff's YouTube channel, the presenter shared his intention to buy a house, but expressed concerns that his good credit could result in penalties if the plan goes through.
Schiff's response was, “If you miss just a few payments, you're hurting your credit rating.” That will help your mortgage rate.”
Schiff, who successfully predicted the 2008 financial crisis, pointed out the problems with this change.
“This new rule encourages people to make smaller deposits than they might otherwise have made,” he said. “You usually get a better price by paying a large deposit. But now Biden wants the better interest rates to go to people who don't make a large down payment.”
While the new rule could encourage more people to become homeowners, Schiff said it bodes ill for American banks.
“The worst part is that it will further undermine the solvency of our banking system by encouraging and even requiring banks to lend more to riskier borrowers, which means more mortgages will default,” Schiff warned.
Certainly, buying a home in this day and age can be quite a burden.
“They are money pits”
The US Federal Reserve has implemented significant interest rate hikes to curb rampant inflation. And mortgage rates have also risen, meaning homebuyers are struggling with higher mortgage payments.
According to the Mortgage Bankers Association, the average mortgage payment for applicants in March was $2,093, up 1.6% from $2,061 in February.
Simply put, homes are not very affordable in America.
“The Affordability Index hit a new survey high last month, with both the typical purchase application amount and the monthly payment increasing on a monthly and yearly basis,” Edward Seiler, associate vice president of the Mortgage Bankers Association, said in a statement.
When you buy a home, you have to factor in more than just the mortgage payment. Homeowners also have to pay property taxes, insurance, maintenance, and repairs.
“Houses are very expensive, believe me, I own several,” observed Schiff. “They are money pits. If you're broke, you can't own a house.”
Invest in real estate without buying a house
Although residential real estate is expensive to buy and maintain, it remains a popular option for investors. One of the reasons is that the asset is known to be a hedge against inflation.
As the prices of raw materials and labor increase, it becomes more expensive to build new properties. And that in turn contributes to the increase in value of existing real estate.
At the same time, high real estate prices and high mortgage rates are making home ownership less viable. And when people cannot afford to buy a home, renting is the only option. This creates a stable rental income stream for landlords.
If you're looking to earn passive income by investing in residential real estate, buying a home isn't the only option. There are real estate investment trusts (REITs) that specialize in renting out multi-family and single-family homes. And if you want to avoid the volatility associated with public REITs, there are also fractional investment platforms that allow retail investors to invest directly in real estate through the private market for as little as $100.
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This article “If You Miss Just a Few Payments, Your Credit Score Gets Worse”: Peter Schiff Criticizes Biden's New Mortgage Rule. How to Invest in Real Estate Without Buying a Home originally appeared on Benzinga.com
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