Three Benefits to Buying Your Dream Home This Spring
Outside of a strong economy, low unemployment, and higher wages, there are three more great reasons why you may want to consider buying a home this spring instead of waiting.
1. Buying a Home Is a Great Investment
Several reports from the Federal Reserve Bank, Gallup, and Porch.com all indicate Americans believe real estate is a good investment, topping other options such as gold, stocks, bonds, and savings. Why? Real estate helps build equity, a form of investing for you and your family. The Equity Report from ATTOM Data Solutions says:
“14.5 million residential properties in the United States were considered equity-rich, meaning that the combined estimated amount of loans secured by those properties was 50 percent or less of their estimated market value. The count of equity-rich properties in the fourth quarter of 2019 represented 26.7 percent, or about one in four, of the 54.5 million mortgaged homes in the U.S. “The Equity Report from ATTOM Data Solutions
If you want to build your equity, this year is a great time to start putting your housing costs to work for you through homeownership.
2. Mortgage Interest Rates Are Low
The Primary Mortgage Market Survey from Freddie Mac indicates interest rates for a 30-year mortgage have fallen since November 2018 when they reached 4.94%. In February of 2020, they hit the lowest level in three years (3.45%). The latest Freddie Mac forecast notes how mortgage rates are expected to remain low, leveling out to an average of 3.8% this year.
When you purchase a home at a low mortgage rate, it will impact your monthly mortgage payment, giving you the opportunity to potentially buy more house for your money.
3. Investing in Your Family Is a Win
There are some renters who haven’t purchased a home yet because they’re uncomfortable taking on the obligation of a mortgage. Everyone should realize that unless you’re living rent-free with friends or family, you’re paying a mortgage — either your mortgage or your landlord’s.
Today, according to the March 2020 Rent Report on apartmentlist.com, average rental prices continue to rise. This means your landlord benefits each time you pay more on your lease. When you’re paying your landlord mortgage instead of your own, you’re not the one earning the equity.
As an owner, your mortgage payment is a form of ‘forced savings’ you can use later in life to reinvest in your family. You can put it towards a variety of investments, such as saving for your children’s education, moving up to a bigger home, or starting your own business. As a renter, it can be more challenging to achieve those types of goals without home equity working for you.
Bottom Line: Buying a home sooner rather than later could lead to substantial savings and long-term financial growth for you and your family. Let’s get together to determine if homeownership is the right choice for you this spring.
Regardless of the Price, You’re Going to Need Advice
In real estate today, there are essentially three different price points in the market: the starter-home market, the middle-home market, and the premium, or luxury-home, market. Each one is unique, and depending on your location, the price point in these categories will vary. Here’s what you need to know about each of these tiers before you get ready to buy a home.
Starter-Home Market: This market varies by price, and these homes are typically purchased by first-time homebuyers or investors looking to flip them for a profit. Across the country, there is currently less than a 6-month supply of inventory for sales in this segment. In fact, according to the National Association of Realtors (NAR), in January, inventory reached the lowest supply level recorded since 1999. That means there aren’t enough homes on the lower end of the market for the number of people who want to buy them. A low supply like this generally increases competition, drives bidding wars, and sets up an environment where homes sell above the listing price. This is a seller’s market.
Middle-Homes Market: This segment is often thought of as the move-up market. Typically, the buyer in this market is moving into a larger, more custom home with more features, all coming at a higher price. Across the country, this market is looking more balanced than the lower or starter-end and is leaning toward a seller’s market.
Premium or Luxury-Home Market: This is the higher-end of the market with larger homes that have even more custom features and upgrades. Nationwide, there are more homes available in the premium and luxury space, creating more of a buyer’s market in this specific segment.
Bottom Line: With today’s inventory, selling your starter home now and moving up to the home of your dreams may be your best move yet.
How Low Mortgage Rates Increase Your Purchasing Power
Since Freddie Mac’s Primary Mortgage Market Survey indicates interest rates for a 30-year fixed-rate mortgage are forecasted to remain low throughout the rest of 2020, this could create a great opportunity for you to buy a home this year. That’s because the mortgage interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but it also impacts your purchasing power.
Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.
For example, this chart shows the impact rising interest rates have if you purchase a home at about the median existing-home price ($274,500 at the close of 2019), assuming you want to keep your principal and interest payments around $1,200 a month. The lower the rate, the higher your purchasing power climbs, meaning you can buy more for your money when rates are low.
Bottom Line: With mortgage interest rates forecasted to remain low throughout 2020, this may be a great year for you to consider buying a home.
Rising Rental Prices Can Add Up Fast
Working with a real estate professional who keeps an eye on what the experts are saying about the housing market is a key factor in staying informed and making the best possible decisions for your family. If you’re renting, this is more important than ever.
As noted in the National Rent Report, “National average Y/Y rent growth is a modest 1.7%.” This year-over-year increase may not sound like much, but it can add up – fast. The math on how much extra it will cost you over time surely doesn’t lie.
Here’s an example:
On a $1,500 rental payment, an increase of 1.7% adds a cost of approximately $25 per month. When multiplied by the 12 months in a year, that’s a $300 overall annual increase. The price continues to multiply when you rent year after year, as rental prices rise.
While $25 per month may not sound substantial, for many households, this value is equivalent to being able to afford a gym membership, a couple of streaming service subscriptions, or a family pet’s food budget.
History shows how average rental prices have been increasing each year, and even when they’ve leveled off for a month or two on occasion, the increase over time has proven to be quite significant.
The graph here shows how rents have grown since 2012 alone:
Renting, however, isn’t the only answer to meeting housing needs. According to the Freddie Mac Forecast, “We expect mortgage rates to remain low, averaging 3.8% in 2020.”
That’s great news if you want to make a jump into homeownership. You can put the money you’re spending in rent toward your own equity, strategically investing in your financial future while it’s less expensive to borrow money for your mortgage.
Why not lock down your monthly housing expense and at the same time build additional net worth for you and your family? If you’re thinking about buying a home, consider the financial benefits of what homeownership can do for you, especially while the market conditions are in your favor.
Bottom Line: With average rents rising, now may be a great time to stabilize your monthly payment by becoming a homeowner and locking into a low mortgage rate.
Buying a Home: Do You Know The Lingo?
Here’s a list of some of the most common terms used in the homebuying process that you’ll want to know.
Appraisal – A professional analysis used to estimate the value of the home. A necessary step in validating a home’s worth to you and your lender as you secure financing.
Closing Costs – The fees required to complete the real estate transaction. Paid at closing, they include points, taxes, title insurance, financing costs, and items that must be prepaid or escrowed. Ask your lender for a complete list of closing cost items.
Credit Score – A number ranging from 300-850 that’s based on an analysis of your credit history. Helps lenders determine the likelihood you’ll repay future debts.
Down Payment – Down payments are typically 3-20% of the purchase price of the home. Some 0% down programs are also available. Ask your lender for more information.
Mortgage Rate – The interest rate you pay to borrow money to buy a home. The lower the rate, the better.
Pre-Approval Letter – A letter from a lender indicating you qualify for a mortgage of a specific amount.
Real Estate Professional – An individual who provides services in buying and selling homes. Real estate professionals are there to help you through the confusing paperwork, find your dream home, negotiate any of the details that come up, and so you know exactly what’s going on in the housing market.
The Power of Having a Real Estate Professional on Your Side
If you’re searching for a home online, you’re not alone; lots of people are doing it. The question is, are you using all your available resources, and are you using them wisely? Here’s why the Internet is a great place to start the homebuying process, and the truth on why it should never be your only go-to source of information and support when it comes to making such an important decision.
According to the National Association of Realtors (NAR), the three most popular information sources homebuyers use in the home search are:
• Online Website (93%)
• Real Estate Agent (86%)
• Mobile/Tablet Website or App (73%)
Clearly, you’re not alone if you’re starting your search online; 93% of homebuyers are right there with you. The even better news: 86% of buyers are also getting information from a real estate agent at the same time.
Here are three reasons why working with a real estate pro in addition to your digital search is key:
1. The Full Transaction Is Complex. There’s more to real estate than finding a home online, and it’s a lonely and complicated trek around the web if you don’t have a real estate professional to also help you through the 230 possible steps you’ll face as you navigate through a real estate transaction. Determining your price, submitting an offer, and negotiating successfully are just a few of the key parts of the sequence. You’ll want someone who has been there before to help you through it.
2. You Need a Skilled Negotiator. In today’s market, hiring a talented negotiator could save you thousands, maybe even tens of thousands of dollars. From the original offer to the appraisal and the inspection, many of the intricate steps can get confusing. You need someone who is willing to be your advocate and can keep the deal together until it closes.
3. You Need an Educator. There’s so much information out there in the news and on the Internet about home sales, prices, mortgage rates, and more. How do you know what’s fact and what’s fiction? How do you know what’s specifically going on in your area? How do you know what to offer on your dream home without paying too much or offending the seller with a lowball offer?
Dave Ramsey, known as the financial guru, advises: “When getting help with money, whether it’s insurance, real estate or investments, you should always look for someone with the heart of a teacher, not the heart of a salesman.”
Hiring a real estate professional who has a finger on the pulse of the market and is eager to help you learn along the way will make your buying experience an informed and educated one. You need someone who’s going to tell you the truth, not just what they think you want to hear.
Bottom Line: If you’re ready to start your search online, don’t skip over the support of an educated, experienced, and informed professional. You need someone at your side who can answer your questions and guide you through a process that can be complex and confusing if you go at it with the Internet alone.
How to Make Your Dream of Homeownership a Reality
Once you have a real estate professional securely in your corner, you’ll want to understand a little bit more about the homebuying process. Here’s a look at three important questions to think through.
1. How Can I Better Understand the Process, and How Much Can I Afford?
The process of buying a home is not one to enter lightly. You need to decide on key things like how long you plan on living in an area, school districts you prefer, what kind of commute works for you, and how much you can afford to spend.
According to ConsumerReports.org: “Financial planners recommend limiting the amount you spend on housing to 25 percent of your monthly budget.”
Keep in mind, before you start the process of purchasing a home, you’ll also need to apply for a mortgage. Lenders will evaluate several factors connected to your financial track record, one of which is your credit history. They’ll want to see how well you’ve been able to minimize past debts, so make sure you’ve been paying your student loans, credit cards, and car loans on time.
2. How Much Do I Need for a Down Payment?
In addition to knowing how much you can afford on a monthly mortgage payment, understanding what you’ll need for a down payment is another critical step. Thankfully, there are many different options and resources available to potentially reduce the amount you may think you need to put down on a home.
If you’re concerned about saving for a down payment, start small and be consistent. A little bit each month goes a long way. Jumpstart your savings by automatically adding a portion of your monthly paycheck into a separate savings account or house fund.
“Over time, these automatic deposits add up. For example, $50 a month accumulates to $600 a year and $3,000 after five years, plus interest that has compounded.”
Before you know it, you’ll have enough for a down payment if you’re disciplined and thoughtful about your process. The 2019 Home Buyer Report conducted by NerdWallet says:
“The truth: 32% of current U.S. homeowners put 5% or less down on their home, according to census data.”
3. Am I Practicing Living on a Reasonable Budget?
As tempting as it is to settle in each morning with a fancy cup of coffee from your favorite local café, putting that daily spend toward your down payment will help accelerate your path to homeownership.
It’s the little things that count, so start trying to live on a slightly tighter budget if you aren’t doing so already. A budget will allow you to save more for your down payment and help you pay down other debts to improve your credit score.
A recent survey shared on Bankrate.com says:
“70 percent of would-be first-time homebuyers will cut spending on spa days, shopping, and going to the movies in exchange for purchasing a home within the next year.”
While you don’t need to cut all the fun out of your current lifestyle, making smarter choices, and limiting your spending in areas where you can slim down will make a big difference.
Bottom Line: If homeownership is on your wish list this year, take a good look at what you can prioritize to help you get there, and you’ll be one step closer to making your dream a reality.
Why Pre-Approval Should Be Your First Step
In many markets across the country, the number of buyers searching for their dream home greatly exceeds the number of homes for sale, driving a competitive marketplace where it can be tough to stand out. Since you know you’ll need to apply for a mortgage before you purchase a home, one way to show you’re serious about buying is to get pre-qualified or pre-approved before you start your search. Even if you’re in a market that’s not as strapped for inventory, understanding your budget will help you know if your dream home is within your reach.
Freddie Mac lays out the advantages of pre-approval in the My Home section of their website:
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”
One of the advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you through this process. Once you’ve selected a lender, you’ll need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment, and residential history.”
Freddie Mac describes the “4 Cs” that help determine the amount you’ll be qualified to borrow:
1. Capacity: Your current and future ability to make your payments.
2. Capital or Cash Reserves: The money, savings, and investments you have that can be sold quickly for cash.
3. Collateral: The value of the assets you’re pledging as security against the loan.
4. Credit: Your history of paying bills and other debts on time.
Getting pre-approved is one of the many steps that will show home sellers you’re serious about buying. Completing this in advance often accelerates the process once your offer has been accepted.
Bottom Line: If you’re ready and willing to buy, getting pre-approved will help you feel more informed and may even give you the edge you need in today’s competitive homebuying process.
Two Myths That May Be Holding You Back from Buying
The 2020 Millennial Home Buyer Report shows how this generation is not really any different from previous ones when it comes to homeownership goals:
“The majority of millennials not only want to own a home, but 84% of millennials in 2019 considered it a major part of the American Dream.”
Unfortunately, the myths surrounding the barriers to homeownership – especially those related to down payments and FICO® scores – might be keeping many buyers out of the arena. The piece also reveals:
“Millennials have to navigate a lot of obstacles to be able to own a home. According to our 2020 survey, saving for a down payment is the biggest barrier for 50% of millennials.”
Millennial or not, unpacking two of the biggest myths that may be standing in the way of homeownership among all generations is a great place to start the debunking process.
Myth #1: “I Need a 20% Down Payment”
Many buyers often overestimate what they need to qualify for a home loan. According to the same article:
“A down payment of 20% for a home of that price [$210,000] would be about $42,000; only about 30% of the millennials in our survey have enough in savings to cover that, not to mention the additional closing costs.”
While many potential buyers still think they need to put at least 20% down for the home of their dreams, they often don’t realize how many assistance programs are available with as little as 3% down. With a little research, many renters may be able to enter the housing market sooner than they ever imagined.
Myth #2: “I Need a 780 FICO® Score or Higher”
In addition to down payments, buyers are also often confused about the FICO® score it takes to qualify for a mortgage, believing they need a credit score of 780 or higher.
Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans, shows the truth is, over 50% of approved loans were granted with a FICO® score below 750.
Even today, many of the myths of the homebuying process are unfortunately keeping plenty of motivated buyers on the sidelines. In reality, it really doesn’t have to be that way.
Bottom Line: Don’t let any common myths keep you out of the housing market. You may have more options than you think, and a trusted real estate professional can help you along the way.
Ready to Make an Offer? Four Tips for Success
Once you find the perfect house to call your new home, making an offer can be an intimidating part of the buying process. In such a competitive market, you’ll want to make sure you make all the right moves so you can ultimately land your dream home.
Below are four helpful tips provided by Freddie Mac so you can feel more confident about making a solid offer on your next home:
1. Determine Your Price
“You’ve found the perfect home and you’re ready to buy. Now what? Your real estate agent will be by your side, helping you determine an offer price that is fair.”
Based on your agent’s experience and key considerations (like similar homes recently sold in the same neighborhood, the condition of the property, and what you can afford), your agent will help you determine an offer to present.
If you’ve been pre-approved for a mortgage in advance, you’ll be that much more prepared for this step. Pre-approval will show home sellers you’re serious about buying and will allow you to make your offer with confidence as it relates to your budget, savings, expenses, and more.
2. Submit an Offer
“Once you’ve determined your price, your agent will draw up an offer, or purchase agreement, to submit to the seller’s real estate agent. This offer will include the purchase price and the terms and conditions of the purchase.”
Talk with your agent to find out ways to make your offer stand out in this competitive market.
3. Negotiate the Offer
“Oftentimes, the seller will counter the offer, typically asking for a higher purchase price or to adjust the closing date. In these cases, the seller’s agent will submit a counteroffer to your agent, detailing their desired changes, at this time, you can either accept the offer or decide if you want to counter.
Each time changes are made through a counteroffer, you or the seller have the option to accept, reject, or counter it again. The contract is considered final when both parties sign the written offer.”
If your offer is approved, Freddie Mac urges you to “always get an independent home inspection, so you know the true condition of the home.” If the inspector uncovers undisclosed problems or issues, you can discuss any repairs that may need to be made with the seller.
4. Act Fast
The inventory of homes listed for sale today remains well below the 6-month supply that constitutes a ‘normal’ market, especially at the entry-level. Buyer demand has continued to outpace the supply of homes for sale, causing buyers to compete for their dream homes.
Make sure as soon as you decide you want to make an offer that you work with your agent to present it as quickly as possible.
Bottom Line: Whether buying your first home or your fifth, let’s talk about your needs and what you’re looking for to make sure the process goes smoothly.
Things to Avoid After Applying for a Mortgage
Once you’ve found the right home and applied for a mortgage, there are some key things to keep in mind before you close on your home. You’re undoubtedly excited about the opportunity to decorate your new place, but before you make any large purchases, move your money around, or make any major life changes, consult your lender – someone who will be able to tell you how your financial decisions will impact your home loan.
Below is a list of things you shouldn’t do after applying for a mortgage that are important to know – or simply just good reminders – for the process.
1. Don’t Change Jobs or the Way You’re Paid at Your Job
Your loan officer must be able to track the source and amount of your annual income. If possible, you’ll want to avoid changing from salary to commission or becoming self-employed during this time as well.
2. Don’t Deposit Cash into Your Bank Accounts
Lenders need to source your money, and cash is not easily traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.
3. Don’t Make Any Large Purchases Like a New Car or Furniture for Your New Home
New debt comes with new monthly obligations. New obligations create new qualifications. People with new debt have higher debt to income ratios. Higher ratios make for riskier loans, and then sometimes qualified borrowers no longer qualify.
4. Don’t Co-Sign Other Loans for Anyone
When you co-sign, you’re obligated. As we mentioned, with that obligation comes higher ratios as well. Even if you swear you won’t be the one making the payments, your lender will have to count the payments against you.
5. Don’t Change Bank Accounts
Remember, lenders need to source and track your assets. That task is significantly easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.
6. Don’t Apply for New Credit
It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO® score will be impacted. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
7. Don’t Close Any Credit Accounts
Many clients erroneously believe that having less available credit makes them less risky and more likely to be approved. Wrong. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those determinants of your score.
Bottom Line: Any blip in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. The best plan is to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.
What to Expect from Your Home Inspection
After you make an offer and it’s accepted, your next task is to have the home inspected prior to closing. Agents often recommend you make your offer contingent upon a clean home inspection. This contingency allows you to renegotiate the price you offered for the home or ask the seller to address the necessary repairs. Your agent can advise you on the best course of action once the report is filed.
How to Choose an Inspector
Your agent will most likely have a shortlist of inspectors to recommend. HGTV suggests you consider the following five areas when choosing your preferred home inspector:
1. Qualifications – Find out what’s included in your inspection and if the age or location of your home may warrant specific certifications or specialties.
2. Sample Reports – Ask for a sample inspection report so you can review how thoroughly they’ll be inspecting your dream home. In most cases, the more detailed the report, the better.
3. References – Do your homework. Ask for phone numbers and names of past clients who you can call for references.
4. Memberships – Not all inspectors belong to a national or state association of home inspectors, and membership in one of these groups is not the only way to evaluate your choice. Membership in one of these organizations does, however, often mean continued education and training are required of the inspector.
5. Errors and Omission Insurance – Find out about the liability of the inspector or inspection company once the inspection is over. The inspector is only human, after all, and it is possible they might miss something they should see.
Ask your inspector if it’s okay for you to tag along during the inspection, so they can point out anything that should be addressed or fixed.
Don’t be surprised to see your inspector looking very carefully at all elements of the home. The job of the inspector is to protect your investment and find any issues that may be present, including but not limited to the roof, plumbing, electrical components, appliances, heating and air conditioning systems, ventilation, windows, fireplace, chimney, foundation, and more.
Bottom Line: They say ignorance is bliss, but not when investing your hard-earned money into a home of your own. Work with a professional you can trust to give you the most information possible about your new home, enabling you to make the most educated purchase decision.
*Home inspection regulations, requirements, and processes may vary by state and locality. Work with a trusted advisor to ensure your process runs smoothly based on your specific area.
Have You Put Aside Enough for Closing Costs?
Once you’re ready to finalize your home purchase, it’s important to make sure you’ve also saved enough for closing costs.
Freddie Mac defines closing costs as follows:
“Closing costs, also called settlement fees, will need to be paid when you obtain a mortgage. These are fees charged by people representing your purchase, including your lender, real estate agent, and other third parties involved in the transaction.
Closing costs are typically between 2 & 5% of your purchase price.”
Many first-time homebuyers often say that they wish someone let them know closing costs could be so high. If you think about it, with a low down payment program, your closing costs could potentially equal the amount you saved for your entire down payment.
Here’s a list of just some of the fees that may be included in your closing costs depending on where the home you wish to purchase is located:
• Government Recording costs
• Appraisal fees
• Credit Report fees
• Lender Origination fees
• Title Services (insurance, search) fees
• Tax service fees
• Survey fees
• Attorney fees
• Underwriting fees
Is There Any Way to Avoid Paying Closing Costs?
Work with your lender and real estate agent to see if there are ways to decrease or defer your closing costs. There are no-closing cost mortgages available that feature a higher interest rate or wrap closing costs into the total cost of the mortgage (meaning you’ll end up paying interest on your closing costs). Your lender can help you find the option that best fits your needs.
Homebuyers can also negotiate with the seller over who pays these fees. Sometimes, the seller will agree to assume the buyer’s closing costs in order to get the deal finalized.
Bottom Line: Speak with your lender early and often to determine how much you’ll be responsible for at closing. Finding out you need to produce thousands of dollars right before closing is not a surprise anyone wants to experience.
5 Reasons to Hire a Real Estate Professional
Contracts: We help with all disclosures and contracts necessary in today’s heavily regulated environment.
Pricing: We help you understand today’s real estate values when setting the price of a listing or making an offer to purchase.
Experience: We are well-educated in real estate and experienced with the entire sales process.
Negotiations: We act as a buffer in negotiations with all parties throughout the entire transaction.
Understanding of Current Market Conditions: We simply and effectively explain today’s real estate headlines and decipher what they mean to you.
CONTACT ME TO TALK MORE
I’m sure you have questions and concerns about the real estate process.
I’d love to talk with you about what you read here and help you on the path to buying your new home. My contact information is below and I look forward to working with you.
Chuck Swigart | Branch Manager | NMLS# 238602
(303) 868-6071 | email@example.com | YourWayLoan.com