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Down Payments

No… You Do Not Need 20% Down to Buy NOW!

No… You Do Not Need 20% Down to Buy NOW! | Simplifying The MarketThe Aspiring Home Buyers Profile from the National Association of Realtors (NAR) found that the American public is still somewhat confused about what is required to qualify for a home mortgage loan in today’s housing market. The results of the survey show that non-homeowners cite the main reason for not currently owning a home, as not being able to afford one.This brings us to two major misconceptions that we want to address today.

1. Down Payment

NAR’s survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 39% of non-homeowners say they believe they need more than 20% for a down payment on a home purchase. In actuality, there are many loans written with a down payment of 3% or less.Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.

2. FICO® Scores

An Ipson survey revealed that 62% of respondents believe they need excellent credit to buy a home, with 43% thinking a “good credit score” is over 780. In actuality, the average FICO® scores of approved conventional and FHA mortgages are much lower.The average conventional loan closed in August had a credit score of 752, while FHA mortgages closed with a score of 683. The average across all loans closed in August was 724. The chart below shows the distribution of FICO® Scores for all loans approved in August.No… You Do Not Need 20% Down to Buy NOW! | Simplifying The Market

Bottom Line

If you are a prospective buyer who is ‘ready’ and ‘willing’ to act now, but are not sure if you are ‘able’ to, let’s sit down to help you understand your true options.

Putting Down Less Than 10%

Number of Buyers Putting Down Less Than 10% Hits 7-Year High | Simplifying The Market

Putting Down Less Than 10%

According to Black Knight Financial Service’s Mortgage Monitor Report, 1.5 million Americans have purchased a home with down payments under 10% over the last 12 months. This is great news for buyers as this marks a 7-year high!Many mortgage programs offered by agencies like Freddie Mac and Fannie Mae allow buyers to put down as low as 3% to purchase their dream homes. The strength of the housing market has aided buyers who used low-down-payment programs to buy. As a recent CNBC article points out,
“Defaults on recent low down payment loans, so far, are slow. But that is as much a factor of the good credit quality as it is the strength of the housing market. Home prices are rising incredibly fast, meaning those borrowers are gaining equity in their homes quickly.”
Low down payments aren’t just great for first-time homebuyers. These programs have allowed homeowners who want to capitalize on the equity they have in their homes. They use the profit from their sale to pay off high-interest credit cards, fund education or even start a business.According to a new Census Report, the Annual Survey of Entrepreneurs, home equity was used to start 7.3% of all businesses in the United States, which equates to over 284,000! The industries that saw the most growth from home equity are accommodation & food services, manufacturing and, retail trade.

Bottom Line

Gone are the days of ‘20% down or no mortgage.'  What could you build with the equity in your house? Let’s get together today to evaluate your ability to achieve your dreams!

2 Myths Holding Back Home Buyers

2 Myths Holding Back Home Buyers | Simplifying The MarketIn Realtor.com’s recent article, “Home Buyers’ Top Mortgage Fears: Which One Scares You?” they mention that “46% of potential home buyers fear they won’t qualify for a mortgage to the point that they don’t even try.”

Myth #1: “I Need a 20% Down Payment”

Buyers overestimate the down payment funds needed to qualify for a home loan. According to the First Quarter 2017 Homeownership Program Index (HPI) from Down Payment Resource, saving for a down payment was the barrier that kept 70% of renters from buying.Rob Chrane, CEO of Down Payment Resource had this to say,
There are many mortgage-ready renters today, but they don’t know it. Often, homebuyers remain sidelined for years due to the down payment.
Many believe that they need at least 20% down to buy their dream home, but programs are available that allow buyers put down as little as 3%. Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.

Myth #2: “I Need a 780 FICO® Score or Higher to Buy”

The survey revealed that 59% of Americans either don’t know (54%) or are misinformed (5%) about what FICO® score is necessary to qualify.Many Americans believe a ‘good’ credit score is 780 or higher.To help debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans.2 Myths Holding Back Home Buyers | Simplifying The MarketAs you can see in the chart above, 53.2% of approved mortgages had a credit score of 600-749.

Bottom Line

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 well within your reach.

69% of Buyers are Wrong About Down Payment Needs

69% of Buyers are Wrong About Down Payment Needs | Simplifying The MarketAccording to a recent survey conducted by Genworth Financial Inc. at the Annual Mortgage Bankers’ Association Secondary Market Conference, 69% of potential first-time buyers still believe a 20% down payment is necessary to buy in today’s market.  They have no idea of how little their down payment requirements may be.Nearly 40% of mortgage industry professionals surveyed believe that a lack of knowledge about the home-buying process is keeping potential buyers on the sidelines. Saving for a down payment is often cited as a huge barrier for first-time home buyers to make the leap into home ownership.If home owners believe that they need a 20% down payment to enter the market, they also believe that they will have to wait years (in some markets) to come up with the necessary funds to buy their dream homes.The greatest source of confusion cited in the survey results centered around down payment requirements. The results are broken down in the chart below:69% of Buyers are Wrong About Down Payment Needs | Simplifying The MarketRohit Gupta, CEO of Genworth Mortgage Insurance had this to say,
“While first-time home buyers continue to drive the purchase market, we believe many are staying on the sidelines due to the misconception that a 20 percent down payment is required to secure a mortgage.There are various low down payment options available today that allow prospective home buyers to reach their dreams of home ownership sooner. It is crucial that, as an industry, we proactively educate eligible borrowers about solutions that will enable them to buy a home when they’re ready.”

Bottom Line

Don’t let a lack of understanding of the home-buying process keep you and your family out of the housing market. Let’s get together to discuss your options!  You'll be glad you did!

Your Tax Return: Bring it Home

Your Tax Return: Bring it Home | Simplifying The MarketThis time of year, many people eagerly check their mailboxes looking for their tax return check from the IRS. But, what do most people plan to do with the money? GO Banking Rates recently surveyed Americans and asked the question - “What do you plan on doing with your tax refund?”The results of the survey were interesting. Here is what they plan to do with their money:
  • 41% - Put it into savings
  • 38% - Pay off debt
  • 11% - Go on a vacation
  • 5% - Make a major purchase (car, home, etc.)
  • 5% - Splurge on a purchase
Upon seeing the research, The National Association of Realtors (NAR) wondered if this could help with a constant challenge cited by many people who wish to purchase a home – saving for the down payment.In a recent post in NAR’s Economists’ Outlook Blog, they explained:
“With a sizable tax refund, the average American would have a decent down payment depending on which region or market you live in.”
They went on to add:
“[A]pproximately 5 percent of all respondents indicated they would make a major purchase which does not seem like a lot. However, there is a bigger group 41 percent who see saving the tax return is best and that group could be potential homebuyers if they are not already.”
In other words, putting that money toward purchasing a home is a form of savings.

Bottom Line

When one considers that first-time home buyers in 2016 had an average down payment of 6%, a decent tax return could go a long way toward the necessary funds needed for a down payment on a house. Or perhaps, the down payment needed by a son or daughter to make their homeownership dream a reality. How are you going to spend your return?

How Fast Can You Save for a Down Payment?

How Fast Can You Save for a Down Payment? | Simplifying The MarketSaving for a down payment is often the biggest hurdle for a first-time home buyer. Depending on where you live, median income, median rents, and home prices all vary. So, we set out to find out how fast it would take you to save for a down payment in each state?Using data from the United States Census Bureau and Zillow, we determined how long it would take, nationwide, for a first-time buyer to save enough money for a down payment on their dream home. There is a long-standing ‘rule’ that a household should not pay more than 28% of their income on their monthly housing expense.By determining the percentage of income spent renting a 2-bedroom apartment in each state, and the amount needed for a 10% down payment, we were able to establish how long (in years) it would take for an average resident to save enough money to buy a home of their own.According to the data, residents in Iowa can save for a down payment the quickest in just under 2 years (1.99). Below is a map created using the data for each state:How Fast Can You Save for a Down Payment? | Simplifying The Market

What if you only needed to save 3%?

What if you were able to take advantage of one of Freddie Mac’s or Fannie Mae’s 3% down programs? Suddenly, saving for a down payment no longer takes 5 or 10 years, but becomes attainable in a year or two in many states as shown in the map below.How Fast Can You Save for a Down Payment? | Simplifying The Market

Bottom Line

Whether you have just started to save for a down payment, or have been saving for years, you may be closer to your dream home than you think! Let's meet up so I can help you evaluate your ability to buy today!

Home Mortgages: Rates Up, Requirements Easing

The media has extensively covered the rise in mortgage interest rates since last fall (from 3.42% last September to the current 4.1% according to Freddie Mac). However, a less covered aspect of the  mortgage market is that requirements to get a home mortgage have eased while rates have risen.The Mortgage Bankers Association (MBA) quantifies the availability of mortgage credit each month with their Mortgage Credit Availability Index (MCAI). According to the MBA, the MCAI is:
“A summary measure which indicates the availability of mortgage credit at a point in time.”
The higher the index, the easier it is to get a home mortgage. Here is a chart showing the MCAI over the last several months as rates have increased.Home Mortgages: Rates Up, Requirements Easing | Simplifying The Market

Have requirements for attaining a home mortgage actually eased?

Yes. Here are two examples:
  1. FICO® Score – the credit score which helps determine a buyer’s eligibility. The score required to attain a mortgage has been falling over the last five months:
Home Mortgages: Rates Up, Requirements Easing | Simplifying The Market
  1. Down Payment Requirement – the percentage of the purchase price necessary to place as a down payment on a home. To make this point, let’s look at the percentage of first-time buyers who have put less than 5% down over the last several years as compared to the 1st quarter of 2017:

Home Mortgages: Rates Up, Requirements Easing | Simplifying The Market

Bottom Line

Whether you are a current homeowner looking to move to a home that will better serve your family’s current needs, or a first-time buyer looking for a starter home, it is easier to get a mortgage today than it has been at any other time in the last ten years.

Millennials Flock to Low Down Payment Programs

Millennials Flock to Low Down Payment Programs | Simplifying The MarketA recent report released by Down Payment Resource shows that 65% of first-time home buyers purchased their homes with a down payment of 6% or less in the month of January.The trend continued through all buyers with a mortgage, as 62% made a down payment of less than 20%, which is consistent with findings from December.An article by DS News points to the new wave of millennial home buyers:
“It seems that the long-awaited influx of millennial home buyers is beginning. Ellie Mae reported that mortgages to millennial borrowers for new home purchases continued their ascent in January, accounting for 84 percent of closed loans.”
Among millennials who purchased homes in January, FHA loans remained popular, making up 35% of all loans closed. Ellie Mae’s Executive Vice President of Corporate Strategy Joe Tyrrell gave some insight into why:
“It is not surprising to see Millennial borrowers leverage FHA loans because they typically offer lower down payments and lower average FICO score requirements than conventional loans. Across the board, we're continuing to see strong interest in homeownership from this younger generation.”

Bottom Line

If you are one of the many millennials who is debating a home purchase this year, let's get together to help you understand your options and set you on the path to pre-approval.