Category: First Time Home Buyers

Buyers: Don’t Be Surprised by Closing Costs!

Many homebuyers think that saving for their down payment is enough to buy the house of their dreams, but what about the closing costs that are required to obtain a mortgage?

By law, a homebuyer will receive a loan estimate from their lender 3 days after submitting their loan application and they should receive a closing disclosure 3 days before the scheduled closing on their home. The closing disclosure includes final details about the loan and the closing costs.

But what are closing costs anyway?

According to Trulia:

“Closing costs are lender and third-party fees paid at the closing of a real estate transaction, and they can be financed as part of the deal or be paid upfront. They range from 2% to 5% of the purchase price of a home. (For those who buy a $150,000 home, for example, that would amount to between $3,000 and $7,500 in closing fees.)”

Keep in mind that if you are in the market for a home above this price range, your costs could be significantly greater. As mentioned before,

Closing costs are typically between 2% and 5% of your purchase price.

Trulia continues to give great advice, saying that:

“…understanding and educating yourself about these costs before settlement day arrives might help you avoid any headaches at the end of the deal.”

Bottom Line

Speak with your lender and agent early and often to determine how much you’ll be responsible for at closing. Finding out that you’ll need to come up with thousands of dollars right before closing is not a surprise anyone is ever looking forward to.

Posted in First Time Home Buyers, For Buyers, Move-Up Buyers

Are You Spending TOO Much on Rent?

Chances are if you are renting you are spending too much of your income on your monthly housing expense. There is a long-standing ‘rule’ that a household should not pay more than 28% of their income on their rent or mortgage payment. This percentage allows the household to save money for the future while comfortably covering other expenses.

According to new data released from ApartmentList.com, 49.5 million renters in the United States were cost-burdened in 2017, meaning they spent more than 30% of their monthly incomes on rent. This accounts for nearly half of all renter households in the country and is up 3.1 million from 2007.

When a household is cost-burdened by their monthly housing expense, they are not as easily able to save money for the future. This is a big factor for many renters who dream of owning their own homes someday.

But there is hope for those who are able to save at least a 3% down payment! The percentage of income needed in the US to buy a home is significantly less than renting at 17.1%!

The chart below compares the historic percentage of income needed to rent and buy from 1985-2000 to the first quarter of 2018. As you can see, the cost of renting has climbed above historic numbers while the cost of buying dropped over the same period of time.

Bottom Line

If you are one of the many renters who is spending too much of their monthly income on rent, consider saving money by getting a roommate, moving into a less expensive apartment, or even moving in with family. These are all ways to save for a down payment so that you can put your housing costs to work for you!

Posted in Down Payments, First Time Home Buyers, For Buyers, Rent vs. Buy

Buying a Home Can Be Scary… Until You Know the Facts [INFOGRAPHIC]

Some Highlights:

Many potential homebuyers believe that they need a 20% down payment and a 780 FICO® score to qualify to buy a home which stops many of them from even trying! Here are some facts:

• 72% of buyers who purchased homes this year have put down less than 20%.
• 76.4% of loan applications were approved last month.
• The average credit score of approved loans was 727 in September.

Posted in Buying Myths, First Time Home Buyers, For Buyers, Infographics

Will Home Prices Continue to Increase?

There are many unsubstantiated theories about what is happening with home prices. From those who are worried that prices are falling (data shows this is untrue), to those who are concerned that prices are again approaching boom peaks because of “irrational exuberance” (this is also untrue as prices are not at peak levels when they are adjusted for inflation), there seems to be no shortage of opinion.

However, the increase in prices is easily explained by the theory of supply & demand. Whenever there is a limited supply of an item that is in high demand, prices increase. It is that simple. In real estate, it takes a six-month supply of existing salable inventory to maintain pricing stability. In most housing markets, anything less than six months will cause home values to appreciate and anything greater than seven months will cause prices to depreciate (see chart below).

According to the Existing Home Sales Report from the National Association of Realtors (NAR), the monthly inventory of homes for sale has been below six months for the last five years (see chart below).

Bottom Line

If buyer demand continues to outpace the current supply of existing homes for sale, prices will continue to appreciate. Nothing nefarious is taking place. It is simply the theory of supply & demand working as it should.

Posted in Buying Myths, First Time Home Buyers, For Buyers, For Sellers, Housing Market Updates, Move-Up Buyers, Pricing

The True Cost of NOT Owning Your Home

Owning a home has great financial benefits, yet many continue to rent! Today, let’s look at the financial reasons why owning a home of your own has been a part of the American Dream for the entirety of America’s existence.

Realtor.com reported that:

“Buying remains the more attractive option in the long term – that remains the American dream, and it’s true in many markets where renting has become really the shortsighted option…as people get more savings in their pockets, buying becomes the better option.”

What proof exists that owning is financially better than renting?

1. In a previous blog, we highlighted the top 5 financial benefits of homeownership:

• Homeownership is a form of forced savings.
• Homeownership provides tax savings.
• Homeownership allows you to lock in your monthly housing cost.
• Buying a home is cheaper than renting.
• No other investment lets you live inside of it.

2. Studies have shown that a homeowner’s net worth is 44x greater than that of a renter.

3. Less than a month ago, we explained that a family that purchased an average-priced home at the beginning of 2018 could build more than $49,000 in family wealth over the next five years.

4. Some argue that renting eliminates the cost of taxes and home repairs, but every potential renter must realize that all the expenses the landlord incurs are already baked into the rent payment – along with a profit margin!

Bottom Line

Owning your home has many social and financial benefits that cannot be achieved by renting.

Posted in First Time Home Buyers, For Buyers, Move-Up Buyers, Rent vs. Buy

2 Factors to Watch in Today’s Real Estate Market Whether Buying or Selling

When it comes to buying or selling a home there are many factors you should consider. Where you want to live, why you want to buy or sell, and who will help you along your journey are just some of those factors. When it comes to today’s real estate market, though, the top two factors to consider are what’s happening with interest rates & inventory.

Interest Rates

Mortgage interest rates have been on the rise and are now over three-quarters of a percentage point higher than they were at the beginning of the year. According to Freddie Mac’s latest Primary Mortgage Market Survey, rates climbed to 4.72% for a 30-year fixed rate mortgage last week.

The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but 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 to buy will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows the impact that rising interest rates would have if you planned to purchase a $400,000 home while keeping your principal and interest payments between $2,020-$2,050 a month.

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000). Experts predict that mortgage rates will be over 5% by this time next year.

Inventory

A ‘normal’ real estate market requires there to be a 6-month supply of homes for sale in order for prices to increase only with inflation. According to the National Association of Realtors (NAR), listing inventory is currently at a 4.3-month supply (still well below the 6-months needed), which has put upward pressure on home prices. Home prices have increased year-over-year for the last 78 straight months.

The inventory of homes for sale in the real estate market had been on a steady decline and experienced year-over-year drops for 36 straight months (from July 2015 to May 2018), but we are starting to see a shift in inventory over the last three months.

The chart below shows the change in housing supply over the last 12 months compared to the previous 12 months. As you can see, in June, July, and August, inventory levels have started to increase as compared to the same time last year.

This is a trend to watch as we move further into the fall and winter months. If we continue to see an increase in homes for sale, we could start moving further away from a seller’s market and closer to a normal market.

Bottom Line

If you are planning to enter the housing market, either as a buyer or a seller, let’s get together to discuss the changes in mortgage interest rates and inventory and what they could mean for you.

Posted in First Time Home Buyers, For Buyers, For Sellers, Interest Rates, Move-Up Buyers, Pricing

Should I Buy Now? Or Wait Until Next Year? [INFOGRAPHIC]

Some Highlights:

• The cost of waiting to buy is defined as the additional funds it would take to buy a home if prices & interest rates were to increase over a period of time.
• Freddie Mac predicts interest rates to rise to 5.2% by the third quarter of 2019.
• CoreLogic predicts home prices to appreciate by 5.1% over the next 12 months.
• If you are ready and willing to buy your dream home, find out if you are able to!

Posted in First Time Home Buyers, For Buyers, Infographics, Interest Rates, Millennials, Move-Up Buyers, Pricing

Are Home Prices Softening or Are They Falling?

We are beginning to see reports that more housing inventory is coming to the market and that buyer demand may not be increasing at the same pace it did earlier this year. The result will be many headlines written to address the impact that these two situations will have on home values.

Many of these headline writers will confuse “softening home prices” with “falling home prices,” but there is a major difference between the two.

The data will begin to show that home values are not appreciating at the same levels as they had over the last several years (softening prices). This does NOT mean that prices are depreciating (falling prices).

Here is an example: Over the last several years, national home values increased by more than 6% annually. If you had a home worth $300,000 at the beginning of the year, it would be worth $318,000 by year’s end. If the appreciation rate “falls” to 4%, that $300,000 house would be worth $312,000 at the end of next year – a $6,000 difference.

The price of the home did not fall. It just didn’t increase at the level it had the previous year.

Appreciation rates are projected to end this year at approximately 5%, and then drop to somewhere between 4-5% next year. This drop in appreciation rate will cause home price increases to soften.

Again, this does not mean that home prices will depreciate, but instead that they will appreciate more slowly.

Bottom Line

Be careful when reading headlines that discuss home values. Some headline writers will be legitimately confused and will use the word falling in place of softening. Others will realize that the headline “Home Prices are Falling!” will get more clicks than “Home Prices are Softening” and will intentionally write the more compelling headline. Read the article. If the word depreciation is not mentioned, home values are not falling.

Posted in First Time Home Buyers, For Buyers, For Sellers, Housing Market Updates, Move-Up Buyers, Pricing

The Cost of NOT Paying PMI

Saving for a down payment is often the biggest hurdle for a first-time homebuyer as median incomes, rents, and home prices all vary depending on where you live.

There is a common misconception among homebuyers that a 20% down payment is required, and it is this limiting belief that often adds months, and sometimes even years, to the home-buying process.

So, if you can purchase a home with less than a 20% down payment… why aren’t more people doing just that?

One Possible Answer: Private Mortgage Insurance (PMI)

Freddie Mac defines PMI as:

“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.

Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. The monthly cost of your PMI depends on the home’s value, the amount of your down payment, and your credit score.

Below is a table showing the difference in monthly mortgage payment for a $250,000 home with a 3% down payment and PMI vs. a 20% down payment without PMI:

The first thing you see when looking at the table above is no doubt the added $320 a month that you would be spending on your monthly mortgage cost. The second thing that should stand out is that a 20% down payment is $50,000!

If you are buying your first home, $50,000 is a large sum of money that takes discipline and sacrifice to save. Many first-time buyers save for 5-10 years before buying their homes.

To save $50,000 in 10 years, you would need to save about $420 a month. On the other hand, if you save that same $420 a month, you could afford a 3% down payment in less than a year and a half.

In a recent article by My Mortgage Insider, they explain what could happen in the market while you are waiting to save for a higher down payment:

“The time it takes to save a (larger) down payment could mean higher home prices and tougher qualifying down the road. For many buyers, it could prove much cheaper and quicker to opt for the 3% down mortgage immediately.”

The article went on to say,

“Since renters typically devote a higher percentage of their income to housing than homeowners, providing flexible down payment options can help renters with solid earnings purchase a home – and gain a fixed-rate mortgage with principal and interest payments that will not increase over the life of the loan.”

If the prospect of having to pay PMI is holding you back from buying a home today, Freddie Mac has this advice,

“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

Based on results of the most recent Home Price Expectation Survey, a homeowner who purchased a $250,000 home in January would gain $50,000 in equity over the next five years based on home price appreciation alone (shown below).

Bottom Line

If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, let’s get together to discuss our market’s conditions and help you make the best decision for you and your family.

Posted in Buying Myths, Down Payments, First Time Home Buyers, For Buyers, Move-Up Buyers

Top 3 Myths About Today’s Real Estate Market

There are many conflicting headlines when it comes to describing today’s real estate market. Some are making comparisons to the market we experienced 10 years ago and are starting to believe that we may be doomed to repeat ourselves. Others are just plain wrong when it comes to what it takes to qualify for a mortgage.

Today, we want to try and clear the air by shedding some light on what’s causing some of these headlines, as well as what’s truly going on.

Myth #1: We Are Headed for Another Housing Bubble

Home prices have appreciated year-over-year for the last 76 straight months. Many areas of the country are at or near their peak prices achieved before the last housing bubble burst. This has many worried that we are headed towards another housing bubble.

Reality: The biggest challenge facing today’s real estate market is a lack of homes for sale! Demand is strong, as many renters have come off the fence and are searching for their dream homes.

Historically, a normal market requires a 6-month supply of inventory in order for prices to rise with the rate of inflation. According to the National Association of Realtors (NAR) there is currently a 4.3-month supply of inventory.

The US housing market hasn’t had 6-months inventory since August 2012! The concept of supply and demand is what is driving home prices up!

Myth #2: The Rumored Recession Will Lead to Another Housing Market Crash

Economists and analysts know that the country has experienced economic growth for almost a decade. When this happens, they also know that a recession can’t be too far off. But what is a recession?

Merriam-Webster defines a recession as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two consecutive quarters.”

Reality: Recession DOES NOT equal housing crisis. Many people associate these two terms with one another because the last time we had a recession it was caused by a housing crisis. According to the Federal Reserve, over the last 40 years, there have been six recessions. In each of the previous five recessions, home values appreciated.

Myth #3: There is an Affordability Crisis Looming

Rising home prices have many concerned that the average family will no longer be able to afford the most precious piece of the American Dream – their own home.

There are many different affordability indexes supported by different organizations that all measure different data. For this reason, there is a lot of confusion about what “affordable” actually means.

The monthly cost of a home is determined by the home’s price and the interest rate on the mortgage used to purchase it. According to Freddie Mac, interest rates have risen from 3.95% in January to 4.59% just last week.

Reality: As we mentioned earlier, home prices have appreciated year-over-year for the last 76 months, largely driven by high demand and low supply.

According to a recent study by Zillow, the percentage of median income necessary to buy a home in today’s market (17.1%) is well below the mark reached in 1985 – 2000 (21%), as well as the mark reached in 2006 (25.4)! Interest rates would have to increase to 6% before buying a home would be less affordable than historical norms.

The starter-home market has appreciated at higher levels (9.4% year-over-year) than any other market. One reason for this is the fact that many of the first-time buyers who have flocked to the starter-home market are being met with high competition. For some hopeful buyers, it may take more than a good offer to stand out from the crowd!

Bottom Line

There is a lot of confusion in today’s real estate market. If your future plans include buying or selling, make sure you have a trusted advisor and market expert by your side to help guide you to the best decision for you and your family.

Posted in First Time Home Buyers, For Buyers, For Sellers, Housing Market Updates, Move-Up Buyers