Category: Housing Market (Page 28 of 38)

Right Now Is A Bad Time To Be A Renter

November 13, 2017 / Tom Bonetto

I know this isn’t great news if you are not a homeowner, but this might be the worst time to be renting in the last 40 years.

The average monthly cost of rent nationwide takes up over 35% percent of American income, the highest cost burden recorded since the late 1970s.

As a matter of fact, the number of renters dedicating at least half of their income toward housing hit a record high of 11 million people in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University.

2015 and 2016 saw the biggest surge in new renters in history, according to the report, bringing the number of people living in rental units to around 110 million people — or about 36% of households.

Unfortunately, there’s still more bad news. Apartment vacancy rates have dropped so low that forecasters are predicting that rents could rise, on average, 4 to 6 percent this year. Interestingly, rents are rising faster than that in many metro areas even as overall inflation is running at little less than 2% annually.

The nationwide problem threatens to get worse before it gets better. Apartment builders are building more units, potentially creating supply that is beginning to crest. With that said, demand still exceeds the supply, especially for affordable housing.

The Solution

One of the great underlying opportunities here is that buying a home is considerably cheaper than renting. Renters interested in reducing expenses and collecting tax benefits should absolutely talk to a mortgage lender prior to signing that rental contract.

Mortgage underwriting guidelines have been slowly loosening and those that were denied for a mortgage last year may qualify this year.

At the very least, your mortgage lender can provide the guidance needed to make this your last year as a tenant. Whether your issue be credit score, how your income is calculated, student loan debt or other debt-to-income ratio issues, your lender can layout a roadmap for you to follow.

Here is a link for Advice for First Time Home Buyers. Read it over when you have a minute and see what’s in store!

Stick to the plan, the road-map, they provide and chances are you will be a homeowner by 2018. Your actions and commitment right now might just save you thousands every year.

How to Beat a Cash Offer with a Financing Bid

October 23, 2017 / Tom Bonetto

Cash buyers always seem to have a leg up in the real estate game. Many are investors in the market looking for rental properties. They’ve unsettled the purchase market a bit by swooping in with cash offers and are giving families looking to buy homes via financing some stiff competition.

How can a loan-backed buyer separate themselves from multiple cash offers?

Interestingly, most of the homes these investors are snapping up are the ideal choices for first-time homebuyers. With that said, what possibilities are there for buyers looking to compete against all cash buyers?

Here are five things that I’ve seen help buyers win a loan-backed offer against an investor or cash buyer:

Make sure you have the right approval and right lender

A five-minute conversation with a lender that produces a generic pre-qualifying letter just won’t do in today’s market. Before you are even close to submitting that offer, have your loan pre-approved, contingent upon appraisal of the home’s value. Make sure you have an “fully TBD underwritten approval” – and have your agent relay this to the seller. You can find out about this here…

By doing this, you will be on the same level as cash buyers. The seller’s agent will see your approval ‘as good as cash.’

Work in close contact with your mortgage lender

As a buyer, take the time to know your lender well – and share your current situation honestly. Let them get to know you, too! Your lender is a super important part of this transaction, and as a quality partner will make sure you know exactly what you need to have to make a complete offer.

Have your lender reach out the seller’s agent

I’ve made many phone calls to selling agents (with the permission of the buyers, of course) to let them know the specifics about the borrowers and their qualifications. This phone call right after your offer can give the agent great peace-of-mind. It will bolster your position with the seller and let them know that your bid really is as good as cash.

Make sure your agent presents the seller with a clean contract

The last thing you want to give to the seller is a sloppy offer via the contract. It’s unprofessional and won’t represent you well. Not only that, it creates more work for the seller’s agent – which can and will be held against you. Look at it this way…if an agent is perplexed or slowed down by your contract offer, they’ll reject it and go on to the next one.

Offer slightly more than the listing price

One of the great things about your position as a financed buyer is that you can offer a bit more, and it won’t cost you all that much. For example, if you add $5,000 to your offer, it might cost you $5 to $15 more per month in your payment, depending on your interest rate. That might be a fantastic trade-off to get your dream home right now and separate you from that cash offer.

FHA Loans – Closing Costs and Down Payments

October 16, 2017 / Tom Bonetto

One of the reason FHA home loans are so popular is their low down payment requirement. As long as your credit score exceeds 599, you are eligible for 96.5 percent financing, with a 3.5 percent down payment.

The big question is….how much will your down payment and closing costs be?

Source: The Mortgage Reports – Gina Pogol

FHA Down Payment: Higher Is Better For Bad Credit

If your credit score is 600 or higher, your minimum down payment for FHA financing is 3.5 percent.

Keep in mind that being eligible for financing is not the same as being approved for financing. You can apply, but very few people with the minimum scores get approved for FHA home loans. So if your credit score is marginal, consider coming in with a higher-than-required down payment.

With that said, with credit scores over 640, buyers should generally be OK regarding credit and FHA loans.

Down Payment Gifts

With FHA homes loans, you can get your entire down payment as a gift from friends or family. Your employer, church or other approved organization may also gift you down payment funds.

Gift funds must come with no expectation of repayment. The loan applicant must show that the giver intends the funds to be a gift, that the giver has the money to give, that the money has been transferred to the applicant, and that the funds did not come from an unapproved source.

If you’re lucky enough to be getting a gifted down payment, you’ll need to do the following:

Get a signed “gift letter” from the giver, indicating the amount of the gift, and that it is a gift with no expectation of repayment.
Document the transfer of funds into your account — a deposit receipt or account statement is good.
Get a copy of the most recent statement from the giver’s account, showing that there was money to give you.

The reason for all this documentation is making sure that the gift does not come from the seller, real estate agent, or anyone else who would benefit from your home purchase.

Help From Sellers

As noted above, you can’t get a down payment gift or loan from the home seller, or anyone else who might benefit from the transaction. However, you can get help with your closing costs from a motivated seller.

FHA loans allow sellers to cover closing costs up to six percent of your purchase price. That can mean lender fees, property taxes, homeowners insurance, escrow fees, and title insurance.

Naturally, this kind of help from sellers is not really free. If you want six percent of the sales price in concessions, you’ll have to pay six percent more than the price the buyer is willing to accept.

That’s okay, as long as the property will appraise at the higher price.

FHA Closing Costs

Closing costs for FHA loans are about the same as they are for conventional loans, with a couple exceptions.

The FHA home appraisal is a little more complicated than the standard appraisal, and it often costs about $50 more.
FHA requires an upfront mortgage insurance premium (MIP) of 1.75 percent of your loan amount. However, most borrowers wrap that charge into their loan amount.

If you wrap your FHA insurance into your loan amount, your mortgage starting balance looks like this:

$200,000 purchase with 3.5% down = $193,000 loan with $7,000 down
Add 1.75 percent of $193,000 = $3,378
Total loan amount: $196,378

Note that you can wrap the FHA MIP into your new loan amount, but not your other closing costs. When you refinance, if you have enough equity, you can wrap all your costs into the new loan.

Help From Your Lender

If your seller isn’t interested in covering your closing costs, your lender might be. Here’s how that works.

There are many ways to price a mortgage. For instance, here’s what you might see on a rate sheet for a 30-year fixed mortgage:

The rates with negative numbers have what’s called rebate pricing. That’s money that can be rebated to the borrower and used for things like closing costs.

So if you have a $100,000 loan with a three percent rebate (the 4.125 percent rate in the chart above), you get $3,000 from the lender to cover your closing costs.

How can lenders do this? They do it by offering you a higher interest rate in exchange for an upfront payment now. So, you’d get 3.75 percent if you paid the normal closing costs, while 4.125 percent would get you a three percent rebate. If you only keep your loan for a few years, you can come out ahead with rebate pricing.

Contact me to find out more about FHA pricing and options – it would be my privilege to help!

Photo Credit: Cafe Credit via Flickr, under the Creative Commons License

Second Home Purchasing – What You Need To Know

October 8, 2017 / Tom Bonetto

Hotels are great, but they are certainly not a good investment….unless your last name is Hilton.

Second homes, on the other hand, potentially yield a return while providing a vacation spot over which you have 100% control.

Source: The Mortgage Reports – Lisa Pogol

A Second Home Purchase Could Be a Brilliant Play

According to the Case-Shiller Home Price Index, home prices are up nationwide by more than 5% since last year. That means your vacation home might pay for your vacation.

Nearly one million buyers purchased 2nd homes last year, as no doubt they had grown weary of spending excessively on hotels and vacation rentals.

But buying a vacation home can be a bit trickier than you think – and it’s different than purchasing a primary residence. Make sure you have the right lender on your side – and here’s what you need to know before making that plunge.

Be Clear on All of the Costs

Affording the total cost is different than qualifying for the mortgage. Mortgage underwriters only look at expenses for principal, interest, property taxes, insurance, and, if applicable, HOA dues. If these expenditures check out (along with your current mortgage, if you have one), they approve your loan.

One thing to know is that you should plan carefully before getting started. Owning a second home comes with extra responsibility.

You’ll be maintaining two households, and that could be more expensive than you planned for.

You must consider travel costs, regular maintenance, repairs, utilities, furnishings and household items.

On the plus side, you might offset some or even all of the costs if you rent your home part-time. Make sure to check with your lender, as some loan programs don’t allow you to rent out a second home. You may also be able to write off your mortgage interest and property taxes to reduce overall cost.

What’s the Difference Between a Rental and Vacation Home?

Rental homes and vacation properties are financed differently.

If you can qualify for your purchase without the property generating any income, buy it as a vacation home. You’ll get a better interest rate, and qualifying is more straightforward when rental income is off the table.

However, if you need to rent out your place to afford it, it becomes an investment property, not a second home.

In this case, your lender will want to see an appraisal with a comparable rental schedule. This document tells the underwriter the property’s potential income.

The lender counts 75 percent of the anticipated rents as income to you, and the monthly mortgage, taxes and insurance are added to your expenses when calculating your debt-to-income ratio (DTI).

Please note that investment property mortgages almost always require at least 20 percent down and their mortgage rates can be 50 basis points (0.50%) percent or higher than rates for primary residences.

Know Your Down Payment Requirements

You can buy a primary residence with just three percent down in many cases, but it takes at least ten percent down to buy a vacation home, and that’s if your application is very strong. Otherwise, your lender may require at least 20 percent.

If you don’t have a lot of cash on hand, you may be able to borrow your down payment. The National Association of REALTORS® says that about one-fifth of buyers tap into equity from their primary residence to make the down payment on the second home.

Your loan of choice will probably be a conventional loan, offered by lenders nationwide, and underwritten by standards set out by Fannie Mae and Freddie Mac.

What Are the Assets Needed to Qualify?

When you buy a vacation property, you’ll more than likely need reserves. Reserves are funds available to pay your mortgage if you experience an interruption in income.

You’ll need at least two months of reserves if you’re a well-qualified wage earner, and at least six months if you’re self-employed or have any weaknesses in your file.

One month of reserves is equal to the amount of money it would take to make one months’ payment on both your primary residence and future second home.

Choose Wisely – and Do the Math

It is tempting to jump into a vacation home purchase, but first, weigh the benefits and costs.

Ensure that it makes long-term financial sense to buy. While there are upfront costs, a second home purchase can be a nice addition to your real estate portfolio or retirement plan.

To make ownership even more affordable, shop around for rates by calling at least three lenders. Most, if not all, lenders who offer primary residence loans also offer second home mortgages.

Fall 2017 Real Estate and Mortgage Forecast

October 2, 2017 / Tom Bonetto

The housing markets in Arizona and California have undergone some very positive changes over the last couple of years. Here’s a roundup of some of the real estate and mortgage industry trends that are relevant to homeowners here in the great southwest this fall:

Equity levels for homeowners have risen steadily

According to a reports published by Case-Shiller and other bureaus, median home prices have risen over 6% per year for the last few years here in the southwest.

As a result of this trend, the majority of homeowners now have more equity in their homes than they did when they first purchased their properties. This is good news for those who are considering a mortgage refinance, because positive equity is typically one of the key requirements for refinancing.

Mortgage rates are still in the 4% range, on average

During the middle of September, the average rate for a 30-year mortgage loan sank to its lowest point of 2017. They have ticked upward a bit, but rates are still hovering in the 4% range.

This brings even more good news for homeowners who are thinking about purchasing or refinancing. Buyers can now secure a lower rate and save some money over the long term.

Rates are predicted to rise gradually over the coming months.

Buyers and owners should also know that the Mortgage Bankers Association (MBA) and Freddie Mac both expect mortgage rates to rise gradually through the end of 2017 and into 2018. The MBA recently updated its finance forecast for the U.S. economy, predicting that the average rate for a 30-year home loan would rise over .25% at the end of 2017.

If these forecasts prove to be accurate, it means that buying or refinancing now might be a good idea.

Higher debt-to-income ratios now allowed for some borrowers

As I’ve mentioned previously, Fannie Mae (one of the two government-sponsored enterprises that buy mortgage loans from lenders) announced it would allow higher debt-to-income limits for borrowers seeking a home loan.

Fannie Mae raised its debt-to-income ratio limit from o5% to 50%. This change will affect homeowners and home buyers alike, particularly those who have relatively high debt levels from student loans, credit cards, and other sources.

It looks like there will be a seller’s market for a while

The points listed previously are for those who are thinking of purchasing or refinancing their homes. Here’s a final point for those who are thinking about selling:

Due to strong demand and limited inventory, local housing markets across the southwest will likely continue to favor sellers over buyers.

This has been the case for the last couple of years, and it seems as though the trend will continue into 2018.

As with most real estate trends, this one is driven by supply and demand. Major cities across the southwest are experiencing very low inventory levels right now, below a two-month supply in some cases. (A “balanced” real estate market has five to six months of supply, according to experts.)

As a result, homeowners are generally able to sell quickly and for full market value — if not more.

Bottom line: A lot has changed in the real estate market, and there have been several key developments within the mortgage industry as well. Many of these trends bode well for homeowners, particularly those who are thinking about a refinance.