Mike’s Midday Mortgage Update – Mello-Roos, Insurance and HOA fees Make a Big Difference

I send an email like this once or twice a year, but it is important, so here we go again!
I spoke with a client yesterday who was considering a home priced at approximately $1.65 million. Everything about the house looked great, but then we reviewed the complete monthly payment.
The property had:

• Total property taxes of approximately 2.10%, including Mello-Roos
• HOA dues of $330 per month
• Estimated homeowners insurance of approximately $10,000 per year, based on the first few quotes

I am not against Mello-Roos. However, I am a finance professional, and buyers need to understand the complete numbers, not just the purchase price. 

Comparing Two $1.65 Million Homes with 20% down
Assuming 20% down and a 6.75% interest rate:
Home with Mello-Roos and higher carrying costs
Purchase price: $1,650,000 – Property taxes: 2.10% – Homeowners Insurance: $10,000 per year – HOA: $330 per month – Estimated total monthly payment: $12,612
Now, let's compare that with a similarly priced home in the middle of town: 

Home with standard taxes and lower carrying costs
Purchase price: $1,650,000 –  Property taxes: 1.25% – Homeowners insurance: $6,200 per year – HOA: $100 per month – Estimated total monthly payment: $10,897
That is a savings of approximately $1,715 every month.
But what does that $1,715 really mean?
At the same 6.75% interest rate, a buyer could purchase a home for approximately $1.895 million with normal property taxes, lower insurance and a $100 HOA, and still have a payment close to the payment on the $1.65 million Mello-Roos property.
In other words, the additional taxes, insurance, and HOA costs could reduce the buyer’s purchasing power by approximately $245,000. 

What Happens If Rates Come Down?
We are all concerned about today's payment, but buyers should also understand what the numbers could look like following a future refinance.
Let’s assume rates eventually decline to 4.99%.
$1.65 million home with Mello-Roos – Estimated payment: $11,129 per month
$1.65 million home with normal taxes, insurance, and HOA – Estimated payment: $9,413 per month 

The difference remains approximately $1,716 per month because refinancing lowers the mortgage payment, but it does not eliminate the higher property taxes, insurance, or HOA dues.
Now look at the larger home:
$1.895 million home with normal carrying costs at 4.99% –  Estimated payment: $10,720 per month
That payment would be approximately $409 lower than the payment on the $1.65 million home with Mello-Roos, higher Insurance, and the higher HOA.
That could persuade a client that is looking at the more expensive house. 

The Important Lesson
Some buyers shop according to purchase price. Others shop according to monthly payment. A good lender needs to help them understand both.
My clients may not be comfortable with the complete payment on this particular $1.65 million home. However, they may qualify for and be more comfortable purchasing a more expensive home with normal property taxes, reasonable insurance, and a lower HOA.
The purchase price is only one part of the equation.
Property taxes, Mello-Roos, homeowners insurance, and HOA dues can dramatically affect both the monthly payment and a buyer’s true purchasing power.
Our job is not to tell buyers which house they should purchase. Our job is to explain the complete financial picture, show them what they can comfortably afford and help them make an informed decision.
That is what good guidance is all about.

Interest Rates
Yesterday, interest rates went up to their highest levels of the year! YAY? Today is a good day for rates and oil prices, but we still have a long way to go.  

Loan Programs Snapshot

• Government loans (FHA/VA/USDA): in the 5s –
• Conventional (≤ $832,750): low 6s
• High-balance: mid to high 6s
• Jumbo: Mid 6s
• Bridge Loans  7.75-7.99

Additional options:

• Bank statement loans (10% down+)
• P&L loans (20% down, no bank statements)
• 0% down options (620+ score)
• DSCR loans (15% down)
• Buydowns Available (3/2/1, 2/1, 1/0)
• Private Money loans – Hard Money  
• Construction Loans
• 203K loans
• Commercial Loans
• Fix and Flip Loans  

Rates subject to change without notice.
Condo Update

Good news:

• Nothing this week!     

Bad news:

• Nothing this week!

We love your Non-Warrantable Condo loans!!
Need help checking a condo? Call me, and we can look it up in real time.
Also:
Full California "naughty list" available here:

https://mikemeena.com/non-warrantable-condos/

Let's Connect

If you or your clients, friends, or family need guidance, I'm here.

📞 661-291-2222 (Direct)

📞 661-714-6258 (Cell)

📞 661-260-2970 ext. 2222 (Office)

📧 Mike@AugustaFinancial.com

Sincerely,