2 Myths Holding Back Home Buyers
Freddie Mac recently released a report entitled, “Perceptions of Down Payment Consumer Research.” Their research revealed that,
“For many prospective homebuyers, saving for a down payment is the largest barrier to achieving the goal of homeownership. Part of the challenge for those planning to purchase a home is their perception of how much they will need to save for the down payment…
…Based on our recent survey of individuals planning to purchase a home in the next three years, nearly a third think they need to put more than 20% down.”
Myth #1: “I Need a 20% Down Payment”
Buyers often overestimate the funds needed to qualify for a home loan. According to the same report:
22% of renters and 31% of homeowners believe lenders require 20% or more of a home’s sale price as a down payment for a typical mortgage today. And,
“If a 20% down payment was required, 70% of those who were planning to buy a home in the next three years said it would delay them from purchasing and nearly 30% indicated they would never be able to afford a home.”
While many believe at least 20% down is necessary to buy the home of their dreams, they do not realize programs are available which permit as little as 3%. Many renters may actually be able to enter the housing market sooner than they ever imagined!
Myth #2: “I Need a 780 FICO® Score or Higher to Buy”
Many either don’t know or are misinformed concerning the FICO® score necessary to qualify, believing a ‘good’ credit score is 780 or higher.
To debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans.As indicated in the chart above, 52.4% of approved mortgages had a credit score of 600-749.
Whether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Your dream home may already be within your reach.
What is the Cost of Waiting Until Next Year to Buy? [INFOGRAPHIC]
- The “cost of waiting to buy” is defined as the additional funds necessary to buy a home if prices & interest rates were to increase over a period of time.
- Freddie Mac forecasts interest rates to rise to 4.5% by the Q4 2020.
- CoreLogic predicts home prices to appreciate by 4.8% over the next 12 months.
- If you are ready and willing to buy your dream home, find out if you are able to!
4 Reasons to Buy A Home This Summer
Here are four reasons to consider buying today instead of waiting.
1. Prices Will Continue to Rise
CoreLogic’s latest U.S. Home Price Insights reports that home prices have appreciated by 3.7% over the last 12 months. The same report predicts that prices will continue to increase at a rate of 4.8% over the next year.
Home values will continue to appreciate. Waiting may no longer makes sense.
2. Mortgage Interest Rates Are Projected to Increase
Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year fixed rate mortgage have started to level off around 4.3%. Most experts predict that rates will rise over the next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac, and the National Association of Realtors are in unison, projecting rates will increase by this time next year.
An increase in rates will impact YOUR monthly mortgage payment. A year from now, your housing expense will increase if a mortgage is necessary to buy your next home.
3. Either Way, You Are Paying a Mortgage
Some renters have not yet purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that unless you are living with your parents rent-free, you are paying a mortgage – either yours or your landlord’s.
As an owner, your mortgage payment is a form of ‘forced savings’ which allows you to have equity in your home that you can tap into later in life. As a renter, you guarantee your landlord is the person with that equity.
Are you ready to put your housing cost to work for you?
4. It’s Time to Move On with Your Life
The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise.
But what if they weren’t? Would you wait?
Examine the actual reason you are buying and decide if it is worth waiting. Whether you want to have a great place for your children to grow up, greater safety for your family, or you just want to have control over renovations, now could be the time to buy.
If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.
The Ultimate Truth about Housing Affordability
There have been many headlines decrying an “affordability crisis” in the residential real estate market. While it is true that buying a home is less affordable than it had been over the last ten years, we need to understand why and what that means.
On a monthly basis, the National Association of Realtors (NAR), produces a Housing Affordability Index. According to NAR, the index…
“…measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data.”
Their methodology states:
“To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.”
So, the higher the index, the more affordable it is to purchase a home. Here is a graph of the index going back to 1990:
It is true that the index is lower today than any year from 2009 to 2017. However, we must realize the main reason homes were more affordable. That period of time immediately followed a housing crash and there were large numbers of distressed properties (foreclosures and short sales). Those properties were sold at large discounts.
Today, the index is higher than any year from 1990 to 2008. Based on historic home affordability data, that means homes are more affordable right now than any other time besides the time following the housing crisis.
With mortgage rates remaining low and wages finally increasing, we can see that it is MORE AFFORDABLE to purchase a home today than it was last year!
With wages increasing, price appreciation moderating, and mortgage rates remaining near all-time lows, purchasing a home is a great move based on historic affordability numbers.
Boomerang Buyers: Don’t Be Afraid to Buy a Home Again!
According to CoreLogic, from 2006 to 2014 “there were 7.3 million housing foreclosures and 1.9 million short sales.” The hesitation some Americans feel after experiencing a foreclosure brings to mind the old saying: “Fool me once- shame on you. Fool me twice- shame on me.”
According to the 2019 Home Buyer Report from NerdWallet,
“Thirteen percent of Americans have lost a home due to a financial event such as foreclosure in the past 10 years. More than 6 in 10 of them (61%) have not bought a home since, and 20% of those who haven’t repurchased say they never plan to again.”
This makes sense. They don’t want to go through the same pain again. As a cornerstone of the American dream, nobody wants to lose homeownership. But let’s illustrate this simply: Recall learning to ride your first bike during your childhood. Did you stop riding it because you fell on the ground and scraped your knees? Or did you get back on and try again until you were able to ride without falling?
Purchasing a home is not as simple as learning to ride a bike, but the concept is the same! There are many things necessary to learn that affect the ability to get the financing needed to purchase a home. Past occurrences can determine if there is a waiting period. In other words, you need to let your knees heal before you try again!
As we’ve mentioned in the past, homeownership has many financial and non-financial benefits. Each person needs to go over the pros and cons, taking the time to figure out what is best for their family. Should they continue renting, or should they try to buy again?
The good news is that some “boomerang buyers” are getting back into the market. They’re getting back on their bike!
“Of 2.8 million former homeowners whose foreclosures, short sales or bankruptcies dropped off their credit reports from January 2016 to November 2018, 11.5% have obtained a new mortgage, according to a study by credit rating agency Experian for USA Today.”
NerdWallet’s report also mentioned:
- 6% plan to buy a house this year.
- 39% intend to buy over the next 3 years.
- 58% say they will purchase within 5 years.
If you lost a home due to a financial event but would like to review your options, let’s get together to help you create a plan to obtain a home in the future!
Starting the Search for Your Dream Home? Here Are 5 Tips!
In today’s real estate market, low inventory dominates the conversation in many areas of the country. It can often be frustrating to be a first-time homebuyer if you aren’t prepared.
In a realtor.com article entitled, “How to Find Your Dream Home—Without Losing Your Mind,” the author highlights some steps that first-time homebuyers can take to help carry their excitement of buying a home throughout the whole process.
1. Get Pre-Approved for a Mortgage Before You Start Your Search
One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search. Even if you are in a market that is not as competitive, understanding your budget will give you the confidence of knowing whether or not your dream home is within your reach.
This step will also help you narrow your search based on your budget and won’t leave you disappointed if the home you tour, and love, ends up being outside your budget!
2. Know the Difference Between Your ‘Must-Haves’ and ‘Would-Like-To-Haves’
Do you really need that farmhouse sink in the kitchen to be happy with your home choice? Would a two-car garage be a convenience or a necessity? Could the ‘man cave’ of your dreams be a future renovation project instead of a make-or-break right now?
Before you start your search, list all the features of a home you would like and then qualify them as ‘must-haves’, ‘should-haves’, or ‘absolute-wish list’ items. This will help keep you focused on what’s most important.
3. Research and Choose a Neighborhood You Want to Live In
Every neighborhood has its own charm. Before you commit to a home based solely on the house itself, the article suggests test-driving the area. Make sure that the area meets your needs for “amenities, commute, school district, etc. and then spend a weekend exploring before you commit.”
4. Pick a House Style You Love and Stick to It
Evaluate your family’s needs and settle on a style of home that would best serve those needs. Just because you’ve narrowed your search to a zip code, doesn’t mean that you need to tour every listing in that zip code.
An example from the article says, “if you have several younger kids and don’t want your bedroom on a different level, steer clear of Cape Cod–style homes, which typically feature two or more bedrooms on the upper level and the master on the main.”
5. Document Your Home Visits
Once you start touring homes, the features of each individual home will start to blur together. The article suggests keeping your camera handy to document what you love and don’t love about each property you visit.
Making notes on the listing sheet as you tour the property will also help you remember what the photos mean, or what you were feeling while touring the home.
In a high-paced, competitive environment, any advantage you can give yourself will help you on your path to buying your dream home.
4 Tips for Making a Competitive Offer
So, you’ve been searching for that perfect house to call ‘home,’ and you’ve finally found it! The price is right, and in such a competitive market, you want to make sure you make a good offer so that you can guarantee that your dream of making this house yours comes true!
Below are 4 steps provided by Freddie Mac to help buyers make offers, along with some additional information for your consideration:
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 or the condition of the house and what you can afford), your agent will help you to determine the offer that you are going to present.
Getting pre-approved will not only show home-sellers that you are serious about buying, but it will also allow you to make your offer with confidence because you’ll know that you have already been approved for a mortgage in that amount.
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 terms and conditions of the purchase.”
Talk with your agent to find out if there are any ways in which you can make your offer stand out in this competitive market! A licensed real estate agent who is active in the neighborhoods you are considering will be instrumental in helping you put in a solid offer.
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 or even cancel the contract altogether.
4. Act Fast
The inventory of homes listed for sale has remained well below the 6-month supply that is needed for a ‘normal’ market. Buyer demand has continued to outpace the supply of homes for sale, causing buyers to compete with each other for their dream homes.
Make sure that as soon as you decide that you want to make an offer, you work with your agent to present it as quickly as possible.
Whether buying your first home or your fifth, having a local real estate professional who is an expert in his or her market on your side is your best bet in making sure the process goes smoothly. Let’s talk about how we can make your dream of homeownership a reality!
New Research Shows Housing Is Affordable For First-Time Buyers
Home prices have been on the rise for the last seven years, leading many housing market analysts to conclude that first-time homebuyers are being shut out of the market due to affordability concerns.
The National Association of Realtors (NAR) reports on the percentage of First-Time Home Buyers (FTHB) on a monthly and yearly basis. Their latest report shows that FTHB’s made up 33% of buyers in March, which matches their reported share in 2018.
NAR uses survey data from their members to come up with this statistic, so their results do not include every transaction completed. Rather, they only the transactions reported by members who complete the survey.
The other entity that reports on FTHB share is the American Enterprise Institute (AEI). The AEI uses data from mortgage applications that define an FTHB as “any borrower who did not have a mortgage for the preceding three years.”
This means the AEI measurement also includes former homeowners who transitioned out of a home they previously owned and re-entered the market after at least 3 years. The latest FTHB share data from AEI shows that first-time buyers made up 57.5% of all mortgages in August 2018. NAR’s data shows a 31% share for the same time period.
New research from the New York Federal Reserve shows that these traditional reports on FTHB share have been unable to give an accurate depiction of this group’s involvement in the market.
The NY Fed was able to take consumer credit data and identify when a mortgage payment entered a consumer’s credit report to determine when a first-time home purchase was made. Using this data, they were able to show that AEI’s reported FTHB share was consistently 10% higher. The NAR reports were right on par with their findings until 2010, when NAR’s share dropped to the 11% gap seen today.
So, what does this all mean?
First-time home buyers have not disappeared from the market as many analysts had believed. Buying a home is very much a part of the American Dream for younger generations, just like it had been for their parents and grandparents.
This also means that rising prices have not scared buyers away from the market. Many first-time buyers are making sacrifices to save their down payment and make their dream a reality.
If you are one of the many renters who is scrolling through listings on your phone every night dreaming of buying your own home, there are opportunities in every market to make that dream a reality!