That’s right – even in today’s day and age – the advantage of having a local lender still has its privileges!
Why? Hasn’t technology taken over the mortgage process?
The Ability To Close the Transaction on Time
Kamping-Carder states: “Agents want to work with buyers whose lenders know the local market and have a record of getting deals done. That reassures the listing agent and the seller that a sale will close. In markets like San Francisco, Seattle and Boston, where buyers frequently go up against multiple offers and all-cash bids, confidence that a sale will happen can separate a winning bid from the rest”
“In tight housing markets where bidding wars are common, buyers who need financing can strengthen their offers by working with a locally based mortgage broker or loan officer, real-estate agents and lenders say.”
Sure, online lenders can offer convenience and even slightly lower rates in some instances. But real estate agents in markets with lower inventories (i.e. the western United States) consistently reiterate that the ability to close quickly should be considered one of the most important factors when choosing a lending partner.
Speed Is Key
Speed really is a big deal, as sellers fielding multiple offers will choose the buyer who can close quickly. Many local mortgage firms can close the deal inside of 30 days – and many times even less. The typical big bank or online lender is closer to 45-day time-frame to get a loan.
Local mortgage lenders in fast-paced markets are tuned to quicker closings – and they generally have the relationships with the real estate agents and title companies to move things along at a faster pace.
Personal Service
Most buyers and real estate agents will tell you that working with a local mortgage professional results in more personal contact, the ability to get questions answered promptly, and an overall better experience.
More often than not, the big banks and online lenders won’t be able to work odd hours to push those deals through quickly. That 1-800 telephone number won’t be answered at 9pm on Friday, but your local lender will most likely be there!
One of the fantastic benefits of this program is that it allows the seller to contribute money toward the buyer’s closing costs. These are called “concessions” and they used to attract buyers and offers, making their property more attractive for purchases.
Under current HUD guidelines, sellers can pay money toward a homebuyer’s closing costs, when an FHA loan is being used. These seller contributions are typically limited to 6% of the purchase price.
You might wonder why any buyer would ask a home seller to pay a closing cost credit for the buyer. The first thought that crosses a seller’s mind is “doesn’t the buyer have any money?” – and if the buyer doesn’t have any money, “why should the seller subsidize the buyer’s home purchase?”
However, it is common for sellers to pay a closing cost credit for some buyers in certain situations.
Here’s a brief look at the rules and requirements when a seller pays for some of or all of the buyer’s closing costs…
Seller Concessions and FHA Loans
Because this is a federal program, the US Department of Housing and Urban Development (HUD) sets the rules for seller contributions toward closing costs for FHA loans. It is their Single Family Housing Policy Handbook (HUD Handbook 4000.1) that outlines the regulations for the FHA loan program.
Their handbook further states that “interested parties” (seller, builders, etc.) can contribute money “toward the Borrower’s origination fees, other closing costs and discount points.” These contributions are generally limited to 6% of the sales price.
Believe it or not, seller contributions that exceed 6% do not happen very often. In most cases, these contributions fall at or below the 6% cap.
How Does It Work?
The number one way many buyers get the sellers to pay a closing cost credit is by increasing the sales price to cover the additional expense. For example, let’s say the sales price is $200,000, and the buyers need 3 percent of the purchase price. If you were to divide the sales price by .965 (a 3.5% down payment), that would equal $207,254. If you take $207,245 X 3.5% and deduct it from the sales price, the seller is still netting that same $200,000.
The drawback to this approach is what happens if the home does not appraise by the buyer’s lender at $207,245? If there is no provision for this in the purchase contract, the seller could be stuck paying a credit from a lower sales price and netting much less than the seller anticipated.
The Down Payment Portion
Homebuyers who use an FHA loan to buy a house must make a down payment of at least 3.5% of the purchase price or appraised value.
The FHA handbook states that “Interested Party Contributions may not be used for the Borrower’s [down payment].”
This means that the seller cannot contribute money to the home buyer’s down payment, when an FHA is used to finance the purchase.
It’s the responsibility of the buyer to produce the entire down payment.
Offer a Trade Off for a Closing Cost Credit
Sellers will often agree to pay a closing cost credit if they get everything they want. Sellers want qualified buyers who will close escrow and not cause any problems during the escrow period.
In other words, offer to buy the home in its AS IS condition and assure the seller the buyer will take care of any home inspection issues after closing.
Too many sellers, it is worth it to give a little discount on the price upfront in return for assurance the escrow will close on time without hassles. Some sellers work a little flexibility into the sales price to begin with, so it’s not a hardship to offer a closing cost credit.
In Conclusion
It’s important to distinguish that HUD allows home sellers to contribute toward the buyer’s FHA closing costs — but they do not require it. Seller concessions and contributions are typically agreed upon during the negotiation process, prior to closing.
Generally speaking, sellers tend to be more willing to pay buyer closing costs in a slower real estate market, and less inclined to do so in a hot market with competing offers.
In fact, in a sluggish market you’ll often see real estate yard signs that say things like “seller pays closing costs.” This is an enticement to attract more offers, which might be necessary in a buyer’s market.
In an active and highly competitive housing market, however, this kind of offer is less common. That doesn’t mean buyers can’t ask for the seller to pay some or all of their closing costs. It just means that the current state of the market will affect their willingness to do so. So when it doubt, rely on your real estate agent’s advice.
Rising home prices might be a little frustrating for would-be buyers right now.
But let’s take a look what’s happening for those who already own a home to see the true benefits of ownership. Home equity increases are being seen throughout the country – and this bodes well for the economy – and those who purchase or refinance a home in the coming months.
According to new data from CoreLogic, the average homeowner saw their home equity jump by more than $15,000 last year alone – the biggest increase since 2013.
According to CoreLogic’s recent Home Equity Report, American homeowners saw a 12 percent year-over-year jump in equity from 2016 to 2017. Though the average homeowner gained $15K in equity for the year, in some states, it rose as high as $44,000.
Frank Nothaft, CoreLogic’s chief economist, credits rising home prices for the uptick in equity.
“Home price growth has been the primary driver of home equity wealth creation,” Nothaft said. “The average growth in home equity was more than $15,000 during 2017, the most in four years.”
Though increased equity certainly spells good news for existing homeowners, it also bodes well for the country’s economy at large.
“Because wealth gains spur additional consumer purchases, the rise in home equity wealth during 2017 should add more than $50 billion to U.S. consumer spending over the next two to three years,” Nothaft said.
What This Means For Today’s Buyers
Owning a house provides the owner with a valuable asset and financial stability. By purchasing a home, you’ll have an asset that, in most cases, will appreciate in value over time. A $200,000 home today should see an increase in value to $250,000, $300,000, or more—depending on how long you plan to live there and market conditions.
This makes your home one of the best investments you can make and a way to establish a financial foundation for future generations (aka your kids).
A home can be the ultimate nest egg, providing you with a great investment for retirement. The longer you own your home, the more it should eventually be worth.
As you get older, you can sell the home and use the proceeds to purchase or rent something smaller. Another option: Rent out the house to maintain a steady income stream so you can travel or use for other recreational activities.
Why Now?
Despite rising home prices, American housing is actually quite affordable – and now is really a good time to make that purchase.
According to the latest Real House Price Index from First American Title, today’s home buyers have “historically high levels of house-purchasing power.”
And though real home prices increased 5 percent over the year, they’re still 37.7 percent below their 2006 peak. They’re also more than 16 percent below 2000’s numbers.
As housing values across the country continue to steadily increase, homeowners now have access to a much larger source of equity.
With current mortgage rates low and home equity on the rise, many think it’s a perfect time to refinance your mortgage to save not only on your overall monthly payments, but your overall interest costs as well.
Since rising home values arereturning lost equity to many homeowners, refinancing can make a good deal of sense with even a small difference in your interest rate. Homeowners now have options to do many things with the difference.
More home equity also means you won’t need to bring cash to the table to refinance. Furthermore, interest rates can be slightly lower when your loan-to-value ratio drops below 80 percent. Find out more about the new refinance movement here…
It would be my privilege to help would-be-buyers or refinancers understand the current marketplace and the loan options that can help you own a part of the American dream!
That House Will Probably Cost More The Longer You Wait
Today’s potential home buyers have many questions about local real estate markets and how it relates to the purchase of a new home. The one I hear the most is:
‘Does it make sense to buy a house in now, or would it be better to wait until next year?’
Well, there are some things we just can’t predict with certainty, and that includes future housing costs….however,
most economists and forecasters agree that home values will likely continue to rise throughout 2018 and into 2019. Secondly, these same experts also predict that interest rates will continue to rise.
Houses Are INCREASING in Value and Are Getting More Expensive
As usual, it’s a story of supply and demand. There is a high level of demand for housing in cities across the country, but there’s not enough inventory to meet it. As a result, home buyers in who delay their purchases until 2019 will likely encounter higher housing costs.
According to Zillow, the real estate information company, the median home value for Arizona increased to over $233,000 – a year-over-year increase of 6.7%. In California, the median home value is over $465,000 – an increase of 8.8%. Looking forward, the company’s economists expect the median to rise by another nearly 5% over the next 12 months. This particular forecast projects into the first quarter of 2019.
Other forecasters have echoed this sentiment. There appears to be broad consensus that home values across the country will likely continue to rise over the coming months.
The Supply and Demand for Housing
It is the supply and demand imbalance that’s the primary factor in influencing home prices. So it’s vitally important for home buyers to understand these market conditions.
Most real estate markets, including California and Arizona are experiencing a supply shortage. Inventory is falling short of demand, and that puts upward pressure on home values.
Economists and housing analysts say that a balanced real estate market has somewhere around 5 to 6 months worth of supply. In both California and Arizona today, that figure is in the 2.5 to 3 month range. Clearly, these markets are much tighter than normal, from an inventory standpoint. This is true for other parts of the nation as well, where inventory levels are in the 4-month range.
Interest Rates
There has been a slow increase in interest rates since September of 2017 – and a quicker jump in the last few months. Bond markets haven’t seen pressures like this in over 4 years – and things are trending higher.
Many investors believe inflation is bound to tick up if the labor market continues to improve, and some market indicators suggest inflation expectations have been climbing in recent months.
This is a general reflection better economic data, rising energy prices and the passage of sweeping tax cuts. Many think could provide a further boost to the economy – giving consumers more money at their disposal.
If positive labor and economic news keep pouring out (as most analysts believe things will continue to improve), then the prospect of inflation will put pressure on bonds and interest rates.
The Federal Reserve has suggested that they will have 3 to 4 interest rate increases in 2018, and most experts see a .5% to 1% overall increase in mortgage rates this year.
In Conclusion
So, let’s take a look at our original question: Does it make sense to buy a home in 2018, or is it better to wait until 2019?
Current trends suggest that home buyers who delay their purchases until later this year or next will most likely encounter higher housing costs. All of these trends and forecasts make a good case for buying a home sooner rather than later. Please reach out to me for more, as it would be my privilege to help!
Despite rising home prices, American housing is actually quite affordable – and now is really a good time to make that purchase.
Housing affordability is measured by comparing household income relative to the income needed to purchase a home.
According to the latest Real House Price Index from First American Title, today’s home buyers have “historically high levels of house-purchasing power.”
According to Mark Fleming, First American’s chief economist, “talk of an affordability crisis is over-stated.” In fact, consumer house-buying power – how much home someone can buy based on average income, interest rate and home price – is actually up over the year.
Ms. Yale in her article notes that home-buying power rose by nearly a full percent from November 2016 to November 2017.
And though real home prices increased 5 percent over the year, they’re still 37.7 percent below their 2006 peak. They’re also more than 16 percent below 2000’s numbers.
Because mortgage rates are lower than historical averages, home-buying power is up, according to First American’s Fleming.
“In fact, consumer house-buying power is 2.3 times higher than it was in 2000, almost two decades ago,” he said. “It’s also only 2.9 percent below the peak in July 2016. Because the long-run trend in mortgage interest rates has been downward, from a peak of 18 percent in 1981, the housing market has benefited from consistently increasing house-buying power”
He continues, “Home buyers today have historically high levels of house-purchasing power, and that’s one important reason why, even as unadjusted house price growth exceeds household income growth, the talk of an affordability crisis is over-stated for now.”
The Solution
One of the great underlying opportunities today 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 next rental contract.
Contact me for more information, as it would be my pleasure to help!
Thomas Eugene Bonetto
Mortgage Loan Originator
NMLS: 1431961
About The Coach
Tom Bonetto has been helping his customers and players achieve their best for nearly 30 years. His goal is to provide both a superior customer experience and tremendous value for both his business associates and his players alike.
That’s right – even in today’s day and age – the advantage of having a local lender still has its privileges!
