Starting to Look for a Home? Know What You WANT vs. What You NEED

In this day and age of being able to shop for anything anywhere, it is really important to know what you’re looking for when you start your home search.

If you’ve been thinking about buying a home of your own for some time now, you’ve probably come up with a list of things that you’d LOVE to have in your new home. Many new homebuyers fantasize about the amenities that they see on television or Pinterest, and start looking at the countless homes listed for sale with rose-colored glasses.

Do you really need that farmhouse sink in the kitchen in order 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 now?

The first step in your home buying process should be to get pre-approved for your mortgage. This allows you to know your budget before you fall in love with a home that is way outside of it.

The next step is to list all the features of a home that you would like, and to qualify them as follows:

• ‘Must Haves’ – if this property does not have these items, then it shouldn’t even be considered. (ex: distance from work or family, number of bedrooms/bathrooms)
• ‘Should Haves’ – if the property hits all of the must haves and some of the should haves, it stays in contention, but does not need to have all of these features.
• ‘Absolute Wish List’ – if we find a property in our budget that has all of the ‘must haves,’ most of the ‘should haves,’ and ANY of these, it’s the winner!

Bottom Line

Having this list flushed out before starting your search will save you time and frustration, while also letting your agent know what features are most important to you before starting to show you houses in your desired area.

Don’t Disqualify Yourself… Over Half of All Loans Approved Have a FICO Score Under 750

The results of countless studies have shown that potential home buyers, and even current homeowners, have an inflated view of what is really required to qualify for a mortgage in today’s market.

One such study by the Wharton School of Business at the University of Pennsylvania, revealed that many Millennials have not yet considered purchasing a home, simply because they don’t believe they can qualify for a mortgage.

The article quoted Jessica Lautz, the National Association of Realtors’ Managing Director of Survey Research, as saying that there is a significant population that does not think they will be approved for a mortgage and doesn’t even try. The article also quoted Fannie Mae CEO Tim Mayopoulos: 

“I do think that there’s a sense out there in the marketplace among borrowers that credit may not be available, especially for people with lower credit scores.”

Ellie Mae’s Vice President, Jonas Moe recently encouraged buyers to know their options before assuming that they do not qualify for a mortgage:

“Many potential home buyers are 'disqualifying' themselves. You don't need a 750 FICO Score and a 20% down payment to buy.”

So what credit score is necessary?

Below is a breakdown of the FICO Score Distribution of all closed (approved) loans in August from Ellie Mae’s latest Origination Report.

Over 50% of all approved loans had a FICO Score under 750. Many potential home buyers believe that they need a score over 780 to qualify.

Bottom Line

If owning a home of your own has always been a dream of yours and you are ready and willing to buy, find out if you are able to! Let’s get together to determine if your dreams can become a reality sooner than you thought!

US Housing Market Moving Further into ‘Buy Territory’

According to the latest Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index, the U.S. housing market has continued to move deeper into buy territory, supporting the belief that housing markets across the country remain a sound investment.

The BH&J Index is a quarterly report that attempts to answer the question:

In today’s housing market, is it better to rent or buy a home?

The index examines the entire US housing market and then isolates 23 major cities for comparison. The researchers “measure the relationship between purchasing property and building wealth through a buildup in equity versus renting a comparable property and investing in a portfolio of stocks and bonds.” 

Ken Johnson, Ph.D., Real Estate Economist & Professor at Florida Atlantic University, and one of the index’s authors explains that:

“Housing prices, in general, continue to slow and when considered in light of the recent trends in the Buy vs. Rent Index signal that ownership remains an excellent investment for the majority of Americans.”

While 15 of the 23 metropolitan markets examined moved further into buy territory since last quarter, Dallas, Denver, and Houston are three of the major cities that are currently deep into rent territory. In these three markets, it is estimated that renting will top homeownership 7 out of 10 times.

Eli Beracha, Ph.D., Assistant Professor in the T&S Hollo School of Real Estate at FIU,believes that, in these three markets, the “strong odds in favor of renting to create more wealth should begin to have an impact on the demand for home ownership and from that, impact property prices in these areas.”

Simply put, home prices in these areas will begin to return to more normal levels once residents realize that renting may be a better choice, therefore bringing home affordability back as well.

Bottom Line

The majority of the country is strongly in buy territory. Buying a home makes sense socially and financially. Rents are predicted to increase substantially in the next year. Protect yourself from rising rents by locking in your housing cost with a mortgage payment now.

Don’t Get Caught in the Rental Trap!

There are many benefits to homeownership. One of the top ones is being able to protect yourself from rising rents and lock in your housing cost for the life of your mortgage.

Don’t Become Trapped

Jonathan Smoke, Chief Economist at realtor.com, reported on what he calls a “Rental Affordability Crisis.” He warns that,

“Low rental vacancies and a lack of new rental construction are pushing up rents, and we expect that they’ll outpace home price appreciation in the year ahead.”

In the Joint Center for Housing Studies at Harvard University's 2015 Report on Rental Housing, they reported that 49% of rental households are cost-burdened, meaning they spend more than 30% of their income on housing. These households struggle to save for a rainy day and pay other bills, such as food and healthcare.

It’s Cheaper to Buy Than Rent

In Smoke’s article, he went on to say,

“Housing is central to the health and well-being of our country and our local communities. In addition, this (rental affordability) crisis threatens the future value of owned housing, as the burdensome level of rents will trap more aspiring owners into a vicious financial cycle in which they cannot save and build a solid credit record to eventually buy a home.”

 “While more than 85% of markets have burdensome rents today, it’s perplexing that in more than 75% of the counties across the country, it is actually cheaper to buy than rent a home. So why aren’t those unhappy renters choosing to buy?”

Know Your Options

Perhaps you have already saved enough to buy your first home. HousingWirereported that analysts at Nomura believe:

"It’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment.

 It’s that they think they’re not qualified or they thinkthat they don’t have a big enough down payment.” (emphasis added)

Many first-time homebuyers who believe that they need a large down payment may be holding themselves back from their dream home. As we have reported before, in many areas of the country, a first-time home buyer can save for a 3% down payment in less than two years. You may have already saved enough!

Bottom Line

Don’t get caught in the trap so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Let’s get together to determine if you could qualify for a mortgage now!

Renting vs. Buying: What Does it Really Cost?

Some Highlights:

• The percentage of income needed to afford a median priced home is almost half the percentage of income needed to afford median rent.
• Buying costs are significantly less than renting costs.
• The percentage of income needed to afford a median priced home is less than the historic norm.

Are Foreclosures Increasing or Decreasing?

Recently, there has been a lot of talk about the size of the foreclosure inventory in the nation. There has been some speculation that distressed property inventories are about to skyrocket. Today, we want to reveal what is actually taking place in this segment of the housing market.

CoreLogic, in their most recent National Foreclosure Report, reported that foreclosure inventory has decreased by 23.2% since this time last year. The report also showed that foreclosure inventory has decreased in 49 of the 50 states and that 45 states have posted a year-over-year, double-digit decline (see chart below).

Other findings in the report:

• The Seriously Delinquent Rate (homeowners more than 90 days behind in their mortgage payment) is 3.1% which is the lowest level since November 2007
• The Foreclosure Rate is 1.1% which is also the lowest level since November 2007
• This was the 53rd consecutive month that showed a decline in the Foreclosure Rate

Bottom Line

Though foreclosures do remain in the market, the number is dramatically decreasing. The fact that mortgage delinquency rates are also decreasing means the worst of the foreclosure crisis is in the rearview mirror.

4 Reasons to Move Up to Your Dream Home This Spring

Spring is in full force; the summer months are right around the corner. If you are debating moving up to your dream home, here are four great reasons to consider listing your current home and moving up to your dream home now, instead of waiting.

1. Buyer Demand is High & Inventory is Low

Recent numbers show that buyer demand is at the highest peak experienced in years, and inventory for sale is at a 4.5-month supply, which is still markedly lower than the 6 months needed for a historically normal market.

Demand in many markets is far exceeding the supply, and more properties in March sold in less than 30 days (42%) than in any month since last July.

Listing your home today can greatly increase exposure to buyers who are out in force and ready to act.

2. Prices Will Continue to Rise

CoreLogic recently released their latest Home Price Index in which they predict that national home values will appreciate by 5.3% by this time next year.

The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting for your current home’s value to increase before selling could price you out of your new home if you aren’t careful.

3. Mortgage Interest Rates Are Still Near Record Lows

Interest rates have remained below 4% for some time now and are substantially lower than the rate previous generations paid when getting a mortgage.

The Mortgage Bankers Association, Fannie Mae, Freddie Mac & the National Association of Realtors are in unison projecting that rates will rise over the next 12 months.

An increase in rates will impact YOUR monthly mortgage payment. Even an increase of half a percentage point can put a dent in your family’s net worth. Whether you are moving up or buying your first home, your housing expense will be more a year from now if a mortgage is necessary to purchase your home.

4. It’s Time to Move On with Your Life

The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise. But, what if they weren’t? Would you wait?

Look at the actual reason you are buying and decide whether it is worth waiting. Have you always wanted to live in a certain neighborhood? Would a climate change be just what the doctor ordered? Would you like to be closer to your family?

Bottom Line

If the right thing for you and your family is to move up to the home of your dreams this year, buying sooner rather than later could lead to substantial savings.

Americans Rank Real Estate #1 Long Term Investment

The Gallup organization recently released a survey in which Americans were asked to rank what they considered to be the “best long term investment.” Real estate ranked number one, with 35% of those surveyed saying it was a better long term investment than stocks & mutual funds, gold, savings accounts or bonds.

Here is the breakdown:

The survey revealed that real estate was the number one choice among each of the following groups:

• Men
• Women
• People between the ages of 18-29
• People between the ages of 30-49
• People between the ages of 50-64
• People 65 and older
• People with annual earnings of less than $30,000
• People with annual earnings between $30,000 and $74,999
• People with annual earnings of over $75,000
• People with a college degree
• People without a college degree

Even stock investors ranked real estate number one. According to the report:

“With housing prices showing a steadier path upward in recent months, even stock investors are about as likely…to choose real estate (37%) as stocks (32%) as the best long-term investment.”

I will be posting an infographic showing additional findings revealed in the report.

Billionaire: Buy a Home… And if You Can, Buy a Second Home!

Three years ago, John Paulson gave a keynote address at the CNBC/Institutional Investor Conference. In his speech, he told those in attendance that he believes housing will continue its strong recovery for the next 4 to 7 years, saying that:

"The housing market has bottomed. It's not too late to get involved. I still think buying a home is the best investment any individual can make. Affordability is still at an all-time high."

When asked how the average person could take advantage of the current real estate market at the time, Paulson said:

Buy a home and, if you can, buy a second home.”

Two years ago, Paulson reiterated his statement, saying:

"I still think, from an individual perspective, the best deal investment you can make is to buy a primary residence that you're the owner-occupier of."

Who is John Paulson and why should you listen to him?

Paulson is the person who, back in 2005 & 2006, made a fortune betting that the subprime mortgage mess would cause the real estate market to collapse. He understands how the housing market works and knows when to buy and when to sell.

What do others think of Paulson?

According to Forbes, John Paulson is:

“A multibillionaire hedge fund operator and the investment genius.”

According to the Wall Street Journal, Paulson is:

“A hedge fund tycoon who made his name, and a fortune, betting against subprime mortgages when no one else even knew what they were.”

So… Is what he said still true?

The core reasons behind Paulson’s statements still ring true today, but why does he believe homeownership is such a great investment?

Paulson broke down the math of homeownership as an investment:

1. "Today financing costs are extraordinarily low.”

The latest numbers from Freddie Mac show us that you can still get a 30-year mortgage at historically low rates of under 4%.

2. “And if you put down, let's say, 10 percent and the house is up 5 percent,” as many experts predict, “then you would be up 50 percent on your investment."

How many are seeing a 50% return on a cash investment right now?

Paulson goes on to compare the long term financial benefits of owning versus renting:

3. “And you’ve locked in the cost over the next 30 years. And today the cost of owning is somewhat less than the cost of renting. And if you rent, the rent goes up every year. But if you buy a 30-year mortgage, the cost is fixed.”

Bottom Line

Whenever a billionaire gives investment advice, people usually clamor to hear it. This billionaire gave simple advice – if you don’t yet live in your own home, go buy one.

You Do Not Need 20% Down To Buy NOW

A survey by Ipsos found that the American public is still somewhat confused about what is actually necessary to qualify for a home mortgage loan in today’s housing market. The study pointed out two major misconceptions that we want to address today. 

1. Down Payment

The survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 36% think a 20% down payment is always required. 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

The survey also reported that two-thirds of the respondents believe they need a very good credit score to buy a home, with 45 percent 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 March had a credit score of 753, while FHA mortgages closed with a 685 score. The average across all loans closed in March was 722. The graph below shows how the average FICO Score required has come down over the last 12 months and has stayed around 722 for the last six months.

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, sit down with a professional who can help you understand your true options.