Category Archives: First Time Home Buyers

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Stop Wondering What Your Budget Is & Get Pre-Approved!

Stop Wondering What Your Budget Is & Get Pre-Approved! | Simplifying The Market

In many markets across the country, the number of buyers searching for their dream homes outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show that 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 not in an incredibly competitive market, understanding your budget will give you the confidence of knowing whether or not 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 many 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 have selected a lender, you will 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 will 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 home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential homebuyers overestimate the down payment and credit scores necessary to qualify for a mortgage. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so today.

Young First-Time Buyers Are Saving for Their Dream Homes

Young First-Time Buyers Are Saving for Their Dream Homes | Simplifying The Market

Young buyers (Millennials & Gen Z) have waited longer than previous generations to enter the housing market for their first home. However, this hasn’t stopped them from dreaming about the home they will eventually buy. Many spend hours searching listings and building Pinterest boards of their favorite home features.

According to a survey from Open Listings, 70% of single renters are more likely to spend their Sunday nights swiping through house listings than dating profiles.

All that time window shopping has led 45% of millennials to expect the first home they buy to be their “dream home”! They are willing to wait longer, save more for a larger down payment, and are pickier about the listings they want to tour and the features that they want to see in their first home.

Waiting a little longer to buy a home than their parents or grandparents did has also helped young buyers become more established in their careers prior to making such a large purchase. Lawrence Yun, NAR’s Chief Economist, recently commented,

“Older millennials are now entering the prime earning stages of their careers, and the size and costs of homes they purchase reflect this. Their choices are falling more in line with their Gen X and boomer counterparts.”

In some areas of the country, high competition in the starter home market forces young buyers to wait longer. The extra money they save during that time opens their search to bigger, more expensive homes.

If this trend continues, older millennials will skip the starter home altogether, going straight to a trade-up or premium home instead.

Bottom Line

If you are one of the many young renters planning on buying your first home soon, let’s get together to help determine what type of home will best suit your present and future needs.

What You Need to Know About Private Mortgage Insurance (PMI)

Whether it is your first time or your fifth, it is always important to know all the facts when it comes to buying a home. With the large number of mortgage programs available that allow buyers to purchase homes with down payments below 20%, you can never have too much information about Private Mortgage Insurance (PMI).

What is 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. Freddie Mac goes on to explain that:

“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.” 

According to the National Association of Realtors, the average down payment for all buyers last year was 13%. For first-time buyers, that number dropped to 7%, while repeat buyers put down 16% (no doubt aided by the sale of their homes). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.

Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:What You Need to Know About Private Mortgage Insurance (PMI) | Simplifying The MarketThe larger the down payment you can make, the lower your monthly housing cost will be, but Freddie Mac urges you to remember:

“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.”

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.

Why Is So Much Paperwork Required to Get a Mortgage?

Why Is so Much Paperwork Required to Get a Mortgage? | Simplifying The Market

When buying a home today, why is there so much paperwork mandated by the lenders for a mortgage loan application? It seems like they need to know everything about you. Furthermore, it requires three separate sources to validate each and every entry on the application form. Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago.

There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any other time in history.

1. The government has set new guidelines that now demand that the bank proves beyond any doubt that you are indeed capable of paying the mortgage.

During the run-up to the housing crisis, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again.

2. The banks don’t want to be in the real estate business.

Over the last several years, banks were forced to take on the responsibility of liquidating millions of foreclosures and negotiating an additional million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they have to double (maybe even triple) check everything on the application.

However, there is some good news in this situation.

The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a low mortgage interest rate.

The friends and family who bought homes ten or twenty years ago experienced a simpler mortgage application process, but also paid a higher interest rate (the average 30-year fixed rate mortgage was 8.12% in the 1990s and 6.29% in the 2000s).

If you went to the bank and offered to pay 7% instead of around 4%, they would probably bend over backward to make the process much easier.

Bottom Line

Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.

5 Reasons to Sell Your House This Summer

5 Reasons to Sell Your House This Summer | Simplifying The Market

Here are 5 compelling reasons listing your home for sale this summer makes sense.

1. Demand Is Strong

The latest Buyer Traffic Index from the National Association of Realtors (NAR) shows that buyer demand remains strong throughout the vast majority of the country. These buyers are ready, willing, and able to purchase… and are in the market right now! More often than not, multiple buyers are competing with each other for the same home.

Take advantage of the buyer activity currently in the market.

2. There Is Less Competition Now

Housing inventory is still under the 6-month supply needed for a normal housing market. This means that, in most of the country, there are not enough homes for sale to satisfy the number of buyers.

Historically, the average number of years a homeowner stayed in his or her home was six, but that number has hovered between nine and ten years since 2011. Many homeowners have a pent-up desire to move, as they were unable to sell over the last few years due to a negative equity situation. As home values continue to appreciate, more and more homeowners are granted the freedom to move.

Many homeowners were reluctant to list their home over the last couple of years for fear that they would not find a home to move in to. That is all changing now as more homes come to market at the higher end. The choices buyers have will continue to increase. Don’t wait until additional inventory comes to market before you to decide to sell.

3. The Process Will Be Quicker

Today’s competitive environment has forced buyers to do all they can to stand out from the crowd, including getting pre-approved for their mortgage financing. Buyers know exactly what they can afford before home shopping. This makes the entire selling process much faster and simpler. According to Ellie Mae’s latest Origination Insights Report, the time to close a loan has dropped to 43 days. (Last numbers available.)

4. There Will Never Be a Better Time to Move Up

If your next move will be into a premium or luxury home, now is the time to move up! The inventory of homes for sale at these higher price ranges has created a buyer’s market. This means that if you are planning on selling a starter or trade-up home, it will sell quickly, AND you’ll be able to find a premium home to call your own!

According to CoreLogic, prices are projected to appreciate by 4.8% over the next year. If you are moving to a higher-priced home, it will wind up costing you more in raw dollars (both in down payment and mortgage payment) if you wait.

5. It’s Time to Move on with Your Life

Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than having the freedom to go on with your life the way you think you should?

Only you know the answers to these questions. You have the power to take control of the situation by putting your home on the market. Perhaps the time has come for you and your family to start living the life you desire.

That is what is truly important.

Top 4 Renovations for the Greatest Return on Investment! [INFOGRAPHIC]

Top 4 Renovations for the Greatest Return on Investment! [INFOGRAPHIC] | Simplifying The Market

Top 4 Renovations for the Greatest Return on Investment! [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

  • If you are planning on listing your house for sale this year, these four home improvement projects will net you the most Return on Investment (ROI).
  • Minor renovations can go a long way toward improving the quality of your everyday life and/or impressing potential buyers.
  • Whether you plan to stay in your house for a long time or just a few years, it’s smart to know which home renovations add the most value.

3 Things to Know in the Housing Market Today!

3 Things to Know in the Housing Market Today! | Simplifying The Market

A lot is happening in the world, and it’s having a direct impact on the housing market. The reality is this: some of it is positive and some of it may be negative. Some we just don’t know yet.

The following three areas of the housing market are critical to understand: interest rates, building materials, and the outlook for an economic slowdown.

1. Interest Rates

One of the most important things to consider when buying a home is the interest rate you will be charged to borrow the money. In our recent post we posed the question, “Are Low Interest Rates Here To Stay?” The latest information from Freddie Mac makes it appear they are. We are currently at a 21-month low in interest rates.3 Things to Know in the Housing Market Today! | Simplifying The Market

2. Building Materials

Talk of tariffs could also affect the housing market. According to a recent article, the National Association of Home Builders reports that as much as $10 billion in goods imported from China are used in homebuilding. Depending on the outcome of the tariff and trade discussions between several countries, there could be as much as a 25% boost in the cost of building materials.

3. Economic Slowdown

In a prior blog post on this topic, we began the year with many economic leaders thinking we could expect a recession in late 2019 or early 2020. As spring approached, we reported that economists had started to push that projection past 2020.  Now, three leading surveys indicate that it may begin in the next eighteen months.3 Things to Know in the Housing Market Today! | Simplifying The Market

Bottom Line

We are in a strong housing market. Wages are increasing, home prices are appreciating, and mortgage rates are the lowest they have been in 21 months.  Whether you are thinking of buying or selling, it’s a great time to be in the market.

Renting or Owning, What Is Better for You?

¬Renting or Owning, What Is Better for You? | Simplifying The Market

In a real estate market where home prices are rising, many have begun to reexamine the idea of buying a home, choosing instead, to rent for a while. But often, there is a dilemma: should you keep paying rent, knowing that rent is rising too, or should you lock in your housing cost and buy a home?

Let’s look at both scenarios and analyze the pros and cons of each:

Renting

With the housing market crash in 2008, many homeowners lost their homes and became renters. According to Iproperty Management, “the number of households renting their home … rose from 31.2% of households in 2006 to 36.6% in 2016”.

Some choose to rent because it is more convenient for their lifestyle. Those whose job requires frequent moves need the flexibility that a 6-12 month lease agreement gives them so they can move to their next assignment!

Many renters believe that renting is cheaper because they do not have to pay for maintenance and repairs. (Not true! Landlords work those expenses into your rent and other fees). Another reason many rent is that they feel like they cannot afford the down payment and closing costs required to buy a house, due to their inability to save much after paying their monthly expenses.

That can be true! Nearly 1 in 4 renters spend at least half their household income on rent. In 2017 the “severely” burdened renters’ rate was 24.7% with 24.9% reporting they were “moderately” burdened.

Renting also brings some financial disadvantages. Homeowners can take advantage of tax deductions that let them claim their property taxes and mortgage interest. Additionally, there is a big risk that your rent will go up every time you renew your lease, as we know the median asking rent has been increased steadily since 1988!Renting or Owning, What Is Better for You? | Simplifying The MarketOne of the major challenges with renting is that you don’t have a space to call your own. When you rent, you are paying your landlord’s mortgage, and therefore they are the beneficiaries of the equity gained from paying that mortgage.

Now let’s explore the other side: Homeownership

In the past, we have mentioned the many financial and non-financial benefits of becoming a homeowner. So, let’s just focus on the one big difference between renting and owning, the ability to lock in your housing cost!

Assuming you will have a fixed-rate mortgage, your costs are predictable! You will know exactly what your mortgage payment will be for the next 15-30 years. The homeownership rate in 2018 was 64.4%, and has been on the rise. Those households locked in their housing cost rather than wait for their landlord to raise their rent again!

What are the disadvantages of owning a home? Well, it is a long-term financial commitment! It is not easy to pack quickly and move. You will need time and good planning to do it in a short amount of time.

You need to save your money! Getting a mortgage requires a down payment, closing costs, and moving expenses. Again, that will require some savings and planning!

Unless you have a homeowner’s association (HOA) (and you pay an HOA fee) or a home warranty, you will be responsible for maintenance and taking care of the home. This may range anywhere from regular landscaping to major repairs.

Bottom Line

Like everything in life, there are pros and cons. What is better for you depends on your situation! If you are interested in becoming a homeowner and want to discuss the pros and cons, let’s get together to help you review your current situation and answer any questions you may have!

The Feeling You Get from Owning Your Home

The Feeling You Get from Owning Your Home | Simplifying The Market

We often talk about the financial reasons why buying a home makes sense. But, more often than not, the emotional reasons are the more powerful and compelling ones.

No matter what shape or size your living space is, the concept and feeling of home can mean different things to different people. Whether it’s a certain scent or a favorite chair, that feeling of safety and security you gain from owning your own home is simultaneously one of the greatest and most difficult to describe.

Frederick Peters, a contributor for Forbes, recently wrote about that feeling, and the pride that comes from owning your own home.

“As homeowners discover, living in an owned home feels different from living in a rented home. It’s not just that an owner can personalize the space; it touches a chord even more fundamental than that.

Homeownership enhances the longing for self-determination at the heart of the American Dream. First-time homeowners, young or old, radiate not only pride but also a sense of arrival, a sense of being where they belong. It cannot be duplicated by owning a 99-year lease.”

Bottom Line

Owning a home brings a sense of accomplishment and confidence that cannot be achieved through renting. If you are debating renewing your lease, let’s get together before you do to answer any questions you may have about what your next steps should be, and what is required in today’s market!

How Homeownership Delivers Unsurpassed Family Wealth

How Homeownership Delivers Unsurpassed Family Wealth | Simplifying The Market

There are many financial benefits to homeownership, but probably none more important than its ability to create family wealth.

How Housing Matters is a joint project of the Urban Land Institute and the MacArthur Foundation. It is an online resource for research and information on how homeownership contributes to individual and community success.

Their article, The First Rung on the Ladder to Economic Opportunity Is Housing, explains the importance of homeownership to a family’s financial health. In that article, they simply stated:

“The ladder to economic success can stretch only so high without the asset-building power of homeownership.”

To this point, National Association of Realtors’ (NAR) Economists’ Outlook Blog revealed in a recent post:

“Housing wealth contributes positively to the homeowner’s and children’s economic condition, because home equity can be tapped for expenditures such as investing in another property (which can generate rental income), home renovation (which further increases the home value), a child’s college education, emergency or major life events, or expenses in retirement…

Housing wealth (or net worth or equity) is built up over time via the home price appreciation and the principal payments that the homeowner makes on the loan.”

Here is a graph showing the build-up of wealth over time:How Homeownership Delivers Unsurpassed Family Wealth | Simplifying The MarketJust last month, NAR’s Chief Economist, Lawrence Yun, explained that even though home appreciation has slowed, homeowners are still building wealth:

“Homeowners in the majority of markets are continuing to enjoy price gains, albeit at a slower rate of growth. A typical homeowner accumulated $9,500 in wealth over the past year.”

Later in life, this wealth is crucial…

This wealth is important to a family’s retirement plans. In a recent report from the Joint Center for Housing Studies at Harvard University titled, Housing America’s Older Adults 2018, they revealed that a renter 65 years old or older has a net worth of $6,710. Meanwhile, a homeowner 65+ years old has a net worth of $319,200. That huge difference will allow for a dramatic upgrade in one’s lifestyle during your retirement years.

Bottom Line

Homeownership builds wealth. This, in turn, allows families to have more and better options when it comes to their children and their life in retirement.