Buying a home
Thanks to KCM for the valuable information.
I thought this was interesting and worth adding to the BLOG. As you might know I subscribe to KCM and the information provide is priceless when it comes to today’s real estate market. For the buyers and sellers out there who were wondering what it took to get a mortgage in 2012…here you go.
- The average interest rate was 3.90%
- 21% average downpayment
- Debt to income: house payment 23%, total debt 34%
- Average time to close 48 days
- Types of loans: ARM-3%, 15 YR Fixed 18% and 30 YR Fixed 79%
- Average credit score 748.
For the full article and graphic, click here.
As Dean Hartman said last week, the purchase of a home is a personal decision. However, I want to give everyone four great financial reasons why you should not wait before taking the plunge into homeownership.
Interest Rates Are Increasing
Interest rates have increased almost 3/4 of a point in the last six months. Most experts expect rates to continue to increase through the year. Interest rates along with price determine the overall cost of a home. Even with prices softening, if interest rates rise, it may be less expensive to buy now rather than wait.
The 30-Year Mortgage May Disappear
There has been much debate regarding government’s role in providing support for homeownership. There are several experts who believe If Fannie Mae and Freddie Mac’s roles are eliminated, or even limited, it may be the end to the 30-year mortgage. This concern is addressed in MSN Real Estate’s Is it curtains for the 30-year mortgage?
QRM Requirements Could Be Much More Stringent
Here are proposed changes to the requirements for a ‘qualified residential mortgage’:
- Certain mortgage types would be eliminated
- You would need to put a minimum of 20% down
- You would need a minimum 690 FICO score
- The ratios of income to both the mortgage payment and overall debt would become much more conservative (28% and 36%)
There would be loans available to purchasers who don’t qualify under the new rules. However, they will probably be more expensive to the buyer (both in rate and costs).
Rents Are Expected to Increase
The supply of available rentals is decreasing and the demand is increasing. That will lead to an increase in rental costs throughout the year. The Wall Street Journal this week quoted a report by Reis, Inc:
“Expect vacancies to continue declining, and rents rising through the rest of 2011 at an even faster pace.”
You may be waiting on the sidelines to see if prices will continue to depreciate before you purchase a home. The mortgage expense is a major piece in the overall financial picture of homeownership. Make sure you consider it when timing your decision.
As always, if you have questions please reach out to us, [email protected]
Double Dip or Double Your Money? … or Both?
Last week, MacroMarkets LLC announced the results of the March 2011 Home Price Expectations Survey, compiled from 111 responses of a diverse group of economists, real estate experts and investment and market strategists. Many media sources reported on the survey’s comment about a projected ‘double dip’ in prices. What the media didn’t aggressively cover was the other projection in this same report. Today we want to shed light on both portions.
There is no doubt the survey looked negatively on house prices through the rest of 2011. Robert Shiller, MacroMarkets co-founder and chief economist said:
“Overall, the sentiment among our expert panel regarding the U.S. housing market outlook continues to deteriorate. Now they are expecting only a weak recovery, and even that is not until 2013. This uninspiring view must be influenced by the persistently weak market fundamentals – high unemployment, supply overhang, an unabated foreclosure crisis, and constrained mortgage credit.”
Terry Loebs, MacroMarkets managing director commented on the dreaded ‘double dip’.
“Many more experts are now projecting a double-dip after witnessing the double-dead cat bounce that came in the wake of expired government stimulus programs. In December, only 15% of our panelists were projecting that a new post-crash low would materialize for national home prices. Now, just three months later, almost 50% foresee a double-dip happening this year, and not a single panelist expects national home prices to recover to the pre-bubble trend in the coming 5 years.”
However, the longer term view of home prices was much more optimistic.
Double Your Money
The experts projected that by the end of 2015 home prices would attain a cumulative level of appreciation of almost 10% (see chart below from the report).
This means, if you purchased a house today with a 10% cash down payment, you could double your cash in five years; even taking the projected double dip into consideration.
Shiller also noted that there continues to be significant dispersion among the panelists regarding their individual home price forecasts:
“A few respondents do see a real recovery, predicting prices up 20% or so by 2015.”
If that happens, you would have TRIPLED your cash.
If you are thinking of selling in the next 12 months, you should do it before the projected ‘double dip’. If you are thinking of buying and you plan to live in the home for at least five years, your financial investment will be fine.
Many purchasers have been sitting on the sidelines waiting for home prices to hit bottom. They want to guarantee that they are purchasing at the best possible price. Like them, we also believe that prices still have some room to fall in most markets. However, we disagree that waiting is a good financial decision. The buyer should not be concerned about housing prices. They should be concerned about cost.
The cost of a house is made up of the price AND THE INTEREST RATE they will be paying. Two different pieces of news released yesterday highlight this point.
The National Association of Realtors (NAR) released their 4th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year:
The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009.
A buyer who delayed a purchase might find solace in the fact that prices have not increased. However, the other news released yesterday paints a different picture.
The Primary Mortgage Market Survey was released by Freddie Mac which showed that the 30 year fixed rate mortgage was at 5.05%. Frank Nothaft, vice president and chief economist of Freddie Mac said:
“Long-term bond yields jumped on positive economic data reports, which placed upward pressure on mortgage rates this week…As a result, interest rates on a 30-year fixed-rate mortgage rose to the highest level since the last week in April 2010.”
So prices have remained stable but interest rates have risen dramatically in the last 90 days. What does that mean to a buyer looking to purchase a home this year?
The price is the same. It just costs more.
Let’s show you what the news means:
By sitting on the sidelines for the last 90 days a purchaser lost:
- $89.44 a month
- $1,073.28 a year
- $32,198.40 over the thirty year life of the mortgage
If you buy a $340,000 home, double all these numbers.
Even if prices fall another 10% this year, the cost of a home will increase if interest rates go up more than 1%. Buyers should not worry where prices are going. They should be concerned where costs will be later in the year.
If you are thinking about purchasing a home right now, you are surely getting a lot of advice. And most of that advice is probably negative. Why buy now with prices still falling? Don’t you realize real estate is no longer a good investment? Don’t you know that people who bought five years ago lost their shirt? We understand the concern your friends and family have. However, let’s look at whether or not now is actually the perfect time to buy a home.
There are three questions you should ask before purchasing in today’s market:
1. Why should I buy if house prices are still depreciating?
We believe that in most parts of the country prices will in fact soften in 2011. Price is the major concern for anyone selling a home. When you are buying, COST should be your primary concern. Your monthly payment (cost) is definitely impacted by the price of the home you purchase. The other major component is the interest rate. Waiting for prices to bottom out while rates are increasing can wind up costing you more over the life of the mortgage (see chart here).
Over the last seven weeks, rates have increased over 1/2 a point going from 4.17 to 4.86. Looking at the attached chart shows this increase. Waiting for prices to bottom out seems to make perfect sense. Yet, at a time when rates are increasing, it might NOT make sense. Make sure you have a mortgage professional help you with this math before making a decision.
In an article last week CNN Money reported:
“You can kiss those record lows goodbye,” said Greg McBride, chief economist for Bankrate.com.
Keith Gumbinger of HSH Associates, a provider of mortgage information said that the market reached a new plateau.
“I don’t think we’re going back to a 50-year low anytime soon without an economic collapse,” he said. “Rates will probably never revisit those levels.”
2. When will I begin to see appreciation if I buy now?
This is a great question. Macro Markets, LLC is a company that studies housing prices. They started their Home Price Expectation Survey in 2010. They ask 100+ housing industry experts to project housing prices through 2015. The most current survey shows that the experts are predicting prices to soften until 2012. The experts then project prices to rise reaching a cumulative appreciation of over 10% by 2015.
Purchasing a home today makes great sense from a financial standpoint. Think of the old axiom: You want to buy low and sell high. We may be at the low point regarding the COST of a home. But, this decision should not only be a financial one.
That leads us to our third and final question:
3. Why am I buying a home in the first place?
This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with finances. The Fannie Mae National Housing Survey shows that the four major reasons people buy a home have nothing to do with money:
- A good place to raise children and for them to get a good education
- A place where you and your family feel safe
- More space for you and your family
- Control of the space
What non-financial benefits will you and your family derive from owning a home? The answer to that question should be the reason whether you decide to purchase or not.
The COST of a home will probably remain relatively unchanged even if prices continue to depreciate. Don’t allow money to get in the way of you making the right decision for you and your family. In the long run, the finances will work in your favor anyway.
Should you spend the money on a real estate commission or save that money by selling your home by yourself? That is a question many home sellers in Chesterfield, VA, Tri-Cities, Richmond, VA and the surrounding areas ask themselves. Today, we want to discuss why it is crucial to have a true professional guiding you through the minefield of challenges that exist in the current real estate market.
The housing market today is more challenging than it has ever been and seems to be becoming more difficult each day. What impact will foreclosures have on prices? Which loan products that were available just last month are no longer available? How do you convince perspective purchasers to pull the trigger on an offer when everyone is telling them that they should see another 100 houses before they make a decision? These are tough questions for a trained, experienced professional. The lay person would find it almost impossible to keep abreast of this rapidly evolving industry.
Here are five important reasons to use a real estate professional:
1. Pricing Is Difficult
Just a few years ago, you didn’t have to worry about overpricing your home. If it was too high, all you needed to do was wait as historic appreciation was taking place. The situation is quite different today. With experts calling for another drop in home values, overpricing your property will cost you time. In this market, time costs you money. A professional real estate agent will discuss how increasing inventory could dramatically impact the value of your property in the months to come. They will help you set the right price in today’s market.
2. Negotiating Ability Is Crucial
Buyers today have an almost unlimited supply of homes from which to choose. They realize that puts them in a great negotiating position. Most buyers are now being represented by an agent. Sellers need to also be represented by a professional expert trained to negotiate real estate contracts.
3. Mortgaging Is Key to the Deal
The biggest impact of the housing market collapse is that lending standards are much stricter today than they were a few short years ago. Rules are constantly changing. Even FHA has gone through a guidelines overhaul in the last several months. You need a real estate expert who has teamed up with a knowledgeable mortgage professional to make sure that the buyer in the deal is in fact capable of obtaining a mortgage. Losing time with an unqualified buyer costs you money in a market where prices are falling.
4. Your Family’s Safety
We have always found it puzzling that the same person that will lock every door and window and set the alarm today will then allow total strangers into their house tomorrow. The real estate industry trains its practitioners to take steps to protect themselves and their clients. Take advantage of putting a person between you and the person calling on an ad or yard sign.
5. You Probably Have More Important Things to Do
Selling a home could turn into a full time job. Learning the necessary disclosures, coordinating the dates of your closings, dealing with a challenge regarding your appraisal and re-negotiating the offer after an engineer’s report are just a few of the concerns you may face. You would probably be better of spending that time with the items important to you and your family and leaving the challenges to your agent.
To make sure the sale of your home is handled professionally – hire a Wes Estes. In the long run, you will wind-up with more money in your pocket and have less challenges with the move. If you live in Chesterfield VA, Richmond VA, Colonial Heights VA, Prince George VA or any of the surrounding areas…call us today-888-322-1135.
Almost every mortgage expert predicted that interest rates would skyrocket earlier this year as the Fed backed out of purchasing mortgage-backed-securities. They were wrong and most have refrained from making any new projections ever since. Last week, our own friend and adviser, Dean Hartman, said they may go lower. This week, Market Watch reported on the Mortgage Brokers’ Association’s (MBA) projections:
Mortgage rates may be as low as they’ll get — rates are on course to rise, slowly moving toward 5% by the end of next year, according to the Mortgage Bankers Association’s economic forecast.
It seems that the MBA is in line with the projections of the National Association of Realtors who also believes that rates will increase over the next several quarters. Here are the comparative projections:
If you are thinking about buying a home but are waiting for prices to soften further, be careful that the ‘cost’ of the house isn’t heading upward because of interest rates.
As underwriting guidelines for lenders become morestringent, it becomes clearer what a good mortgage application looks like. As prospective home buyers begin their search, there are a few things they can do to help get their loans approved (and with the best possible terms), and, at the same time, lessen some of the stress that goes along with the mortgage process.
1.) Income Documents
Most lenders want to see a full month of pay stubs and two year’s complete Federal Tax Returns. Assembling them ahead of time and holding on to every pay stub you get is a good idea that will save you time later. Moreover, looking at those documents and being prepared to explain any deductions that show up is crucial. Child support, alimony, garnishments, and Unreimbursed Employee Expense are often crippling factors that, if explained and dealt with upfront, can make your loan approval smoother.
2.) Asset Documents
Most lenders will scour your bank accounts for the two months prior to going to contract. They are looking for large deposits because they can signal a new loan that wouldn’t show up on your credit report yet. What’s a “large deposit”? Typically, any deposit that would represent more than your representative income. If you make $5000 a month, after taxes you likely net $3800 (or $1900 a bi-weekly pay period); therefore, deposits in excess of that will need to be explained and documented. Sold a motorcycle? Have a paid receipt and motor vehicle documents in place. Got a gift? You will need a Gift Affidavit, proof of the donor’s ability, and transfer of the funds. Any and all questions should be discussed with your loan officer.
3.) Credit Score Optimization
Do your best to curtail your use of credit as it relates to your available credit lines. Target a cap of 30% of usage of available lines to get the best scores. Do NOT cancel credit card, as that will lower your amount of available credit, thereby raising your percentage of usage. That will damage your score. Do NOT shop for a car, explore life insurance, look to get a new credit card, or increase the limits on your current cards because the running of your credit by people in other industries will also lower your credit score. Most importantly, don’t do anything that will require having your credit run without first discussing it with a mortgage professional who knows the impact it could have.
4.) Appraisal Concerns
It’s unlikely you will make an offer to purchase without checking out comparable home sales. It’s also likely you received that type of data from the real estate agent you are working with. Make sure your agent prepares the same information for the appraiser. Data about similar sales, similar homes currently available, and maybe even cost estimates for any repairs or improvements anticipated can preempt future problems with appraised values and conditions.
Overall, it is recommended that you hold onto copies of everything financial, think before allowing your credit to be run, and you work with an agent and loan officer who can use their experience to put your loan application in its best possible light…as soon as you start thinking about buying a home.
Every now and then and seems more like now…I’m asked the question…how can you tell the buyer in the afternoon that this is a great time to buy a home and in the evening tell the homeowner that they have to lower their price in order to sell their home. Wait a minute. How can it be a great time to buy if prices are falling? Am I just saying this to make a sale? Actually, in both circumstances I am 100% correct. Perhaps for the first time in American real estate history, you must buy now and you must sell now. How can this be? Because what is important to the buyer is different than what is important to the seller. Let me explain.
The most important thing to the seller: PRICE
Just about every seller is most concerned with trying to get the best price possible for their home. In order to do that, they must sell now. Banks repossessed the highest number of foreclosed homes in history last month. These houses will come to market at dramatically discounted prices. This is the main reason analysts are calling for another dip in prices over the next eighteen months. The best advice a seller can receive is to sell their home now before these foreclosures come to market.
The most important thing to the buyer: COST
Price plays a part in the buyer’s decision. However, the most important thing to most buyers is the cost – the mortgage payment they must pay every month. That payment is determined by the price of the home AND THE INTEREST RATE ON THE MORTGAGE. Rates are artificially low because of government intervention. That will not last forever.
The National Association of Realtors (NAR) has projected that rates will rise over the next seven quarters. What will that do to the cost? Here are NAR’s projections and what impact it will have on a $100,000 mortgage:
As we can see, the interest rate has a major impact on the COST of the home. Even if prices continue to fall, the cost may not go down if interest rates increase.
I’m trying to give the best advice I can to every family and/or individual I work with – even if that advice seems to be counter intuitive.