Trump’s First Executive Order and Your Mortgage

Gentle Readers,

You remember when I learned last summer that changes in FHA Mortgage Guidance would alter my ability to acquire a mortgage. My debt to income ratio has not improved significantly in the past 6 months, as anticipated. I did not think I would be able to pay off $45000, commonly referred to as SL2.

One of Trump’s first acts as the new President of the United States was to make mortgages harder to acquire for middle class folks.

The previous administration had a policy that Trump’s Administration blocked immediately upon assuming office. The policy was on track to reduce the cost of mortgages slightly for many home buyers. The policy was not yet in effect, but was imminently going to impact folks.

What policy are we talking about?

HUD sent a letter suspending the 0.25 % point premium rate cut for FHA-backed loans.  Nearly 20% of mortgages are FHA-backed. The beauty of the FHA is that their criteria make it accessible for more people to access capital necessary to buy a home and enjoy the tax benefits of home ownership. Their most-touted benefit is the significantly lower down-payment. As low as 3.5% of the purchase price. Homes in my high COL area regularly go for over $400,000. A standard 20% down payment is $80,000. A 3.5% down payment is $14,000. It is not hard to see why so many Americans need the help afforded by FHA.

How big is this impact?

Frankly, not big at all. The cut Obama attempted to enact would have saved homeowners with a $400,000 mortgage $58 per month.  Not insignificant, but not overwhelming for most people shopping for a mortgage.

The housing market in parts of the country, mine included, have been on fire lately. The prices are sky-rocketing. Some folks look at high prices and want in. It is unclear if this action will throw water on the housing bubble, but it might.

The most fascinating part for me is that Trump has re-made the fortune he was gifted by understanding the benefits our tax code gives to real estate. Having learned every trick in the book, is he going to encourage the IRS to re-write the book? May the US end a half-century long policy of encouraging home ownership through the tax code? If they did, would that be a bad thing necessarily?

A lot remains to be seen, but I think these tea leaves are impossible to read just yet.

Would you be happy to amend US tax code and move away from a home ownership model?

 

Planning For a Graduate’s Future

Gentle Readers,

A family member is graduating from high school and intends to move out of his home immediately. I’ve racked my brain to come up with a suitable present for my hopes for him.

Naturally, I got him a bunch of personal finance books.

Everybody’s favorite, “The Millionaire Next Door,” because I want him to have honest examples that frugality, and choosing businesses and careers wisely will make his life different than he is accustomed to. Stealth wealth is a phrase I want in his heart. I know that he is exceptionally kind, and I want him to put on his own mask first.

Less popular among people pursuing financial freedom, but a useful framework that may appeal to him, “The Money Book for the Young, Fabulous & Broke.” I want something to reach him, and this may be the most accessible at this point in his life.

The one I’m least sure of, because I have not yet read it myself, “I Will Teach You To Be Rich.” So many people recommend it; many people whom I respect. I wish I had more time to read it, but there is only so many hours in the week.

Lastly, the most esoteric one, that just may be precisely what he could use as a life framework, “Early Retirement Extreme.” Walden knew what he was doing, and this could give my relative all the ideas he needs. I want him to grow in skills especially, but still focus on being a good person.

I chose a variety of books in the hopes that one would appeal and sink in enough to keep him on track. He’s made excellent decisions so far, but his nearby influences are not the example I want for him.

I think that traditional education is not the best current route for him. I’d love to see him gain some more skills and perhaps start a business. I also think he has what it takes and the time to learn how to buy fixer-uppers and make them lovely places to live. Real estate is still not my favorite, but I think it would work well with his personality and current and future skill-set.

What do wish you had read at 18?