Urban Institute recently released a report entitled, “Barriers to Accessing Homeownership: Down Payment, Credit, and Affordability,” which revealed that,
“Consumers often think they need to put more money down to purchase a home than is actually required. In a 2017 survey, 68% of renters cited saving for a down payment as an obstacle to homeownership. Thirty-nine percent of renters believe that more than 20% is needed for a down payment and many renters are unaware of low–down payment programs.”
Myth #1: “I Need a 20% Down Payment”Buyers often overestimate the down payment funds needed to qualify for a home loan. According to the same report:
“Most potential homebuyers are largely unaware that there are low-down payment and no-down payment assistance programs available at the local, state, and federal levels to help eligible borrowers secure an affordable down payment.”These numbers do not differ much between non-owners and homeowners. For example, “30% of homeowners and 39% of renters believe that you need more than 20 percent for a down payment.” While many believe that they need at least 20% down to buy their dream homes, they do not realize that there are programs available which allow them to put down as little as 3%. Many renters may actually be able to enter the housing market sooner than they ever imagined with programs that have emerged allowing less cash out of pocket.
Myth #2: “I Need a 780 FICO® Score or Higher to Buy”Similar to the down payment, many either don’t know or are misinformed 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. As you can see in the chart above, 51.7% of approved mortgages had a credit score of 600-749.
Bottom LineWhether 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. To know for sure, give me a call!
A considerable number of potential buyers shy away from jumping into the real estate market due to their uncertainties about the buying process. A specific cause for concern tends to be mortgage qualification.
For many, the mortgage process can be scary, but it doesn’t have to be!In order to qualify in today’s market, you’ll need a down payment (the average down payment on all loans last year was 5%, with many buyers putting down 3% or less), a stable income, and good credit history. Throughout the entire home buying process, you will interact with many different professionals who will all perform necessary roles. These professionals are also valuable resources for you. Once you’re ready to apply, here are 5 easy steps that Freddie Mac suggests to follow:
- Find out your current credit history & score – even if you don’t have perfect credit, you may already qualify for a loan. The average FICO Score® of all closed loans in September was 731, according to Ellie Mae.
- Start gathering all of your documentation – income verification (such as W-2 forms or tax returns), credit history, and assets (such as bank statements to verify your savings).
- Contact a professional – your real estate agent will be able to recommend a loan officer who can help you develop a spending plan, as well as help you determine how much home you can afford.
- Consult with your lender – he or she will review your income, expenses, and financial goals in order to determine the type and amount of mortgage you qualify for.
- Talk to your lender about pre-approval – a pre-approval letter provides an estimate of what you might be able to borrow (provided your financial status doesn’t change) and demonstrates to home sellers that you are serious about buying!
Bottom LineDo your research, reach out to professionals, stick to your budget, and be sure that you are ready to take on the financial responsibilities of becoming a homeowner.
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 LineIf 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!
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.
According to a new study from Urban Institute, there are over 19 million millennials in 31 cities who are not only ready and willing to become homeowners, but are able to as well! Now that the largest generation since baby boomers has aged into prime homebuying age, there will no doubt be an uptick in the national homeownership rate. The study from Urban Institute revealed that nearly a quarter of this generation has the credit and income needed to purchase a home. Surprisingly, the largest share of mortgage-ready millennials lives in expensive coastal cities. These cities often attract highly skilled workers who demand higher salaries for their expertise. So, what’s holding these mortgage-ready millennials back from buying?
Myths About Down Payment Requirements!Most of the millennials surveyed for the study believe that they need at least a 15% down payment in order to buy a home when, in reality, the median down payment in the US in 2017 was just 5%, and many programs are available for even lower down payments! The study goes on to point out that:
“Despite limited awareness, every state has programs that provide grants and loans to make homeownership more attainable, with average assistance in various states ranging from $2,436 to $21,171.”
Bottom LineWith so many young families now able to buy a home in today’s market, the demand for housing will continue for years to come. If you are one of the many millennials who have questions about their ability to buy in today’s market, let’s get together so I can assist you along your journey!
Lately, there have been many headlines circulating about whether or not there is an “affordability issue forming in the housing market.” If you are considering selling your current house and moving up to the home of your dreams, but are unsure whether or not to believe what you’re seeing in the news, let’s look at the results of the latest Housing Affordability Report from the National Association of Realtors (NAR). According to NAR:
“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 a 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.”
- The national index results for August came in at 141.2.
- This is up from 138.9 in July, but down 8.3% from last August’s value of 153.9.
Bottom LineIf you are thinking of selling your home, let’s get together to discuss the affordability conditions in your town.
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 LineIf 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.
In a recent article, National Housing Inventory Crisis Reaches Inflection Point, realtor.com reported that:
- New listings jumped 8% year-over-year nationally, the largest increase since 2013
- Total listings in the 45 largest markets are now up 6% on average over last year
“With the rate of home price appreciation starting to decelerate alongside the uptick in inventory, we expect significant debate whether this is a bullish or bearish sign.”
Is this a sign the market might crash?There are those who look at the increase in inventory as a sign that we are returning to the market we saw last decade. However, a closer look shows that we are nowhere near the levels of inventory we reached before the crash in 2008. A normal market would have about 6-months inventory, but the latest Existing Home Sales Report issued by the National Association of Realtors revealed that:
“Unsold inventory is at a 4.3-month supply at the current sales pace up from 4.1 months a year ago.”A decade ago, prices began to rapidly depreciate in June 2007. At that time, we had a 9.1-month supply (more than double what it is today) and inventory kept rising until it hit a peak of 11.1 months in April of 2008. With the current levels of buyer demand, any such increase in months supply is highly unlikely. As Danielle Hale, realtor.com’s Chief Economist explains:
“After years of record-breaking inventory declines, September’s almost flat inventory signals a big change in the real estate market. Would-be buyers who had been waiting for a bigger selection of homes for sale may finally see more listings materialize. But don’t expect the level to jump dramatically. Plenty of buyers in the market are scooping up homes as soon as they’re listed, which will keep national increases relatively small for the time being.”
What will be the result of the increase in inventory?The increase in inventory will allow many families who had been unable to find a home to finally become homeowners. Again, we quote from the ‘Z Report’:
“In our view, the short-term narrative will probably be confusing, but more sustainable growth and affordability will likely be the end result.”
Bottom LineIf you are either a first-time or second-time buyer who has given up, let’s get together. We can discuss the inventory available in any town or towns in our market. You may be surprised to find just how many homes are in your price range.
In today’s real estate market, with low inventory dominating 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 recent 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 SearchOne 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 InEvery 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 ItEvaluate 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 VisitsOnce you start touring homes, the features of each individual home will start to blur together. The article suggests keeping your camera handy and documenting what you love and don’t love about each property you visit. They even go as far as to suggest snapping a photo of the ‘for sale’ sign on the way into the property to help keep the listings divided in your photo gallery. 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.
Bottom LineIn a high-paced, competitive environment, any advantage you can give yourself will help you on your path to buying your dream home. I've helped may buyers find the home of their dreams... I can help you too! Call or text me at 516-429-9399,
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 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 if 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:
- Capacity: Your current and future ability to make your payments
- Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
- Collateral: The home, or type of home, that you would like to purchase
- Credit: Your history of paying bills and other debts on time