Category: Real Estate

Buy vs. Rent Index Says ‘Buy’ | Realtor Magazine

The escalating costs of renting are making it a better time to purchase a home in most cities across the country, according to the Florida Atlantic University and Florida International University’s Buy vs. Rent Index. 

“This is great news for homeownership and the financial returns to ownership,” says Ken Johnson, a real estate economist and one of the index’s authors. “We are not where we were in 2012, when nearly any purchase was a sound financial decision. However, overall, we are now in a situation where aggressive marketing from sellers combined with due diligence and sound negotiation from buyers is creating a housing market that’s more in line with what we’ve seen historically.”

Fifteen of the 23 cities in the Buy vs. Rent Index are solidly in “buy” territory. Another five are only marginally in rent territory, the authors note. But, three cities were flagged in the latest report. 

“The scores for Dallas, Denver, and Houston have worried us for some time now,” says Eli Beracha, co-author of the index. “The last time we saw scores of this magnitude, housing market crashes soon followed.”

How Rising Rates Will Impact Home Prices | Realtor Magazine

Americans have, so far, stood resilient to rising mortgage rates, but a bigger impact will come soon, say Goldman Sachs economists. 

Housing’s share of the economy rose above normal levels from November to January, despite mortgage rates surging 60 basis points at the time. 

Still, economists caution that there may be a lag to the impact of rising rates and particularly their effect on home prices. In an analysis—pulling data from past 100-basis point increases in mortgage rates—economists found that the median home price often drops 3 to 4 percent.  

“This median estimate suggests that the recent 60 basis point rise in mortgage rates should, all other things equal, lower house prices by 2 to 3 percent,” the Goldman analysts concluded. “This estimate thus supports our forecast that national house prices will continue to rise, but at a slower pace in the next few years.”

That said, buyer demand is much stronger than supply at the moment and the economy and job growth are continuing to support the housing market. 

“The housing market is also in a more virtuous cycle: Home equity has recovered, mortgage rates remain low enough to be manageable, and high rents make homeownership attractive,” MarketWatch reports.  

Many economists are skeptical whether mortgage rates will actually rise much more than they already have. A survey conducted by MarketWatch in December 2016 showed an average for rates of 4.5 percent throughout 2017, a 35 basis point increase from current readings. 

Young Homebuyers: What’s The Right Age To Buy A House? | Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports

Are Young Homebuyers  Making The Right Decision?

When Jessica Thompson turned 20 years old, she and her boyfriend (now husband) bought a little bungalow in Oklahoma City.  The young homebuyers still live in their home seven years later after putting in  years of sweat equity remodeling it.

“We had rented a studio apartment on the third floor for $630 a month and then we got dogs. We decided they needed a backyard,” she says.

Now, they pay $522 monthly for their own home.

Click to see today’s rates (Mar 10th, 2017)

How Could They Buy So Young?

Saving a down payment at that time in their lives seemed almost impossible – as it does for many Millennials. Yet, they learned from their real estate agent to take advantage of a first-time home buyers’ federal tax credit available in 2010. They found a two bedroom, one bath home on Craigslist sold by the owner.

Today, that credit doesn’t exist, but it’s been replaced by many other down payment assistance programs.

Such a big purchase can be intimidating to many young people. Thompson sees that fear all the time now that she has become a Realtor at Loxwood Real Estate in Oklahoma City.

“The challenge we had at being so young would be that we were just inexperienced, particularly when it came to financing. We didn’t have a lot of money saved up,” she adds.

They also didn’t know how to shop for the right loan. But a Realtor helped them through all the stages of buying. That included knowing a reputable home inspector and termite inspector, and then helping them negotiate the repairs and replacements.

What’s The Best Age To Buy A Home?

That questions remains complicated.

“I wouldn’t put a number on it. It’s really about how settled that person is or what their life holds in the future,” says Ilona Bray, J.D., an award-winning author and legal editor at the consumer-friendly legal website Nolo.

She co-authored Nolo’s Essential Guide to Buying Your First Home.

Individual states determine the age someone can sign a binding contract to buy a home or take out a mortgage.

The Nebraska State Bar Foundation offers the booklet Reaching the Age of Majority of Your Legal Rights and Responsibilities. It educates youth about the rights and responsibilities of entering adulthood.

The booklet states that some of the rights at age 18 include making a contract — taking out a loan in your own name, for instance — and becoming personally responsible for the obligations of contacts you make.

The booklet also states that a creditor cannot turn you down for a loan because of your age, according to the Equal Credit Opportunity Act. But you will still have to earn your credit rating yourself.

How Can Young Homebuyers Get A Mortgage?

Younger people may have a problem acquiring a credit rating. They usually use their parents’ credit cards, Bray adds.

You get credit by, well, getting credit. Your parents, if they have good credit, can help by adding you to their accounts as an authorized user.

You can also establish your own credit. Start out with small credit limits, typical of the accounts offered to college students. But be careful.

“So many people sign up for credit cards in college and mess up their credit rating, because it’s easy to get a card at that age. That can be a barrier to getting a home,” she says.

Establishing good spending habits and not going crazy with credit cards can shift the good credit scale to your side.

One thing lenders are allowed to do is use non-traditional credit for those without enough credit to generate a credit score — that’s rent payments, utility bills, even regular deposits to savings accounts. FHA, HomeReady and Home Possible are more flexible programs — good for first-timers.

What Are The Cons Of Buying So Young?

Lack of Mobility — The prevailing wisdom, Bray explains, is that it doesn’t make financial sense to buy a house if you don’t think you’ll be there for three-to-five years. “Your life still might change at such a young age.”

Too much responsibility –Taking care of a house is like taking care of a giant pet, Bray adds. “It’s all these responsibilities that someone else used to take care of when you were renting or living with your parents, such as just changing the filter on the furnace.”

Less fun time – The lawn needs to be mowed. The windows need to be washed. If something breaks or something needs to be repaired, you take care of it.

Extra money for maintenance – Instead of weekend trips to the beach or mountains, you might have to stretch your budget for the unexpected repairs or appliance replacement.

What Are The Pros Of Buying A Home So Young?

Debt-free sooner — For Thompson, she and her husband will be able to pay off their home early in life because they were so young when they bought it.

Create wealth sooner – If you buy a home in your 20s, you’ll likely have built significant home equity by the time you’re in your 30s. That helps establish your credit and ability to get other loans.

Safe keeping – When you rent, the landlord has most of the power. You can be kicked out at the end of your lease just because the landlord’s nephew needs a place to live. With a home, it’s yours. No one can kick you out – unless you don’t pay your mortgage.

Decorate your way – You like orange paint. You can put it on every wall you want inside your home. In an apartment, there’s no way you would be able to do that unless the landlord allowed it. And most likely, you would have to paint it all back to that drab beige before you move out.

How Many Young Homebuyers Are There?

The 2016 NAR Home Buyers and Sellers Profile shows that first-time homeowners were a median 32 years old with a median income of $72,000.  So what about all those in their early- to mid-20s who really believe buying a home is right for them?

Thompson advises her fellow peers to research down-payment assistance, and find a great Realtor and lender. Building a good credit score remains a top priority, too.

“I would recommend having four lines of credit, but don’t be crazy on spending over 35 percent of your limit,” she says. “And once you get the house, always pay your mortgage on time above any other bill.”

Bray stresses to have your eyes wide open if you want to buy a house – no matter what age you are.

“No one hands you a list and tells you to do this or that once you buy a house. That can be a big transition from life when you were focused on your own education and future,” she said. “It becomes a side job to be conscious of the life of your house.”

8 Ways to Keep Remodeling Costs Under Control

In 2015, home improvement spending in the U.S. reached $340 billion — an all-time high that is expected to increase 2 percent per year for several years — according to the Harvard Joint Center for Housing Studies. According to a report from the JCHS released last month, two big drivers of this activity are millennials buying older, relatively affordable homes that need renovations, and aging baby boomers who are adapting their homes for their changing needs.

All of this remodeling is good for the country’s economy and for updating over-the-hill housing stock. But remodeling can be risky for homeowners who aren’t prepared for the work and costs ahead. The process of remodeling a home is typically fraught with pitfalls that can spiral budgets out of control.

Homeowners who start a remodel unprepared often get stuck partway through the project, unable to finish. As a result, they can become trapped in a torn-up, unfinished house that is almost impossible to sell.

So what can you do to avoid the financial perils of remodeling?

You must do your homework, and then do more homework. The more planning and exploration you do up front, the fewer the surprises you’ll have to derail your budget.

[See: 11 Popular Home Updates That Are Worth the Cost.]

Here are eight tips to help keep your home improvement budget under control.

1) Gather information. If you’re buying a house that you intend to remodel, find out exactly what you’re getting before you buy. Also, gain insights into hidden issues by getting a thorough home inspection.

2) Clarify your goals. List your wants and needs, and then prioritize this list. The more detail you can provide, the better. For example, instead of “remodel kitchen,” jot down specific projects — for example, installing new stock maple cabinets and granite countertops, replacing the kitchen floor with hardwood, adding low-voltage kitchen lighting, replacing the dishwasher and so on.

When doing this, it helps to get a rough idea of typical costs. You can pin down average costs for most remodeling tasks by searching phrases like, “How much do kitchen cabinets cost?” on the internet. Your resulting list will be an important tool when you move on to working with a designer or architect.

Of course, you may not be able to do everything you want, so decide which improvements are key — and be prepared to give up the lesser ones.

3) Work with a professional designer. A well-designed remodel doesn’t cost more to build than a poorly designed one — in fact, it usually costs less because good designers know how to take advantage of building efficiencies. For major construction, you’ll need an architect who knows how to unite the changes with your home’s style, optimize the use of space, deal with structural issues and draw the necessary plans for permits and contractor bids. The architect can also help shepherd the project, guiding it through the permit process and overseeing the contractor’s work.

You may choose to work with a professional interior designer who knows the many available options in materials and can help you achieve the look and feel you want for your remodel within your budget.

[See: 9 Easy Ways to Boost Your Home’s Curb Appeal.]

4) Keep it simple. Talk with your architect or designer about developing a design that is simple and affordable to implement.

For example, you can save on plumbing costs by planning kitchens and bathrooms so they utilize existing drains, vents and supply pipes. When possible, you can usually save by working within your home’s existing footprint to eliminate costly foundation and roof work. Adding a second story, however, can be both costly and incredibly disruptive.

5) Avoid the “while we’re at it” syndrome. During a remodel, it’s very easy to think of additional improvements you would like to make. Though some of these may make sense when the walls are opened up — insulating walls or upgrading plumbing, for example, “while were at it” improvements can devour your budget.

6) Hire a qualified, reliable contractor. This is key to getting your job done right and on budget. The best way to find a good contractor is through personal recommendations from friends or neighbors who have had similar work done. Alternatively, you can find qualified contractors online through referral sites like HomeAdvisor or Angie’s List. Before choosing a contractor, interview and get bids from at least three candidates, ask for references and ask former clients for the pros and cons of their experience.

3 Mortgage Truth Bombs That Will Make You Think Differently — The Motley Fool

Federal Reserve Chair Janet Yellen recently hinted that an interest-rate hike might be coming soon — and many expect the rate to be increased repeatedly in coming years. Even with an increase or two, rates will still be quite low, historically speaking. That makes this a great time to buy a house should you want to.

Spending a little time learning about mortgages can really pay off when you start the homebuying process. The following three mortgage truth bombs are good examples — two might save you thousands of dollars, if not tens of thousands, and one might save your skin.

 

Your credit score matters — a lot

First up is your credit score. You probably know that lenders will check your creditworthiness before deciding what interest rates to offer you. But you might not fully appreciate just how much a low credit score can keep you from being offered great interest rates. Check out the table below, which reflects recent rates for someone borrowing $200,000 via a 30-year fixed-rate mortgage:

FICO Score	APR	Monthly Payment	Total Interest Paid
760-850	3.904%	$944	$139,766
700-759	4.126%	$969	$148,990
680-699	4.303%	$990	$156,434
660-679	4.517%	$1,015	$165,541
640-659	4.947%	$1,067	$184,183
620-639	5.493%	$1,135	$208,492

Source: MyFICO.com, as of early March 2017.

Whether your credit score is 650 or 700 can lead to a difference of about $100 per month, and $35,000 over the life of the loan. The takeaway here is that it can be well worth it to spend a little time beefing up your score before shopping for a home — though you may be racing against rising interest rates at the same time.

Some ways to improve your credit score include paying bills on time and paying off a lot of debt in order to lower your debt-to-available-credit ratio. Lenders like to see you owing only about 10% to 30% of the sum of all your credit limits because it suggests that you have your debt under control and can afford to take on more debt via the mortgage you’re seeking. You can get free copies of your credit reports once a year from each of the main credit reporting agencies — do so and correct any errors on them. Simply correcting errors can easily increase your score.

Enjoy massive savings by paying a little extra

Next, aim to pay more than the minimum amount on your mortgage payments. You might do this by sending in an extra $100 or $200 with each payment in order to reduce your principal, or by sending in a few thousand dollars every few months, if you can. Here’s an example of just how much one might save, using an online calculator from The Mortgage Professor’s website. It assumes a $200,000 loan at 4.5%. The regular monthly payment would be $1,013.38.

Payment Method	Pay Off Loan in…	Total Interest Paid	Total Interest Saved
Minimum payment	30 years	$164,810	$0
$100 extra monthly	25 years	$133,066	$31,744
$200 extra monthly	21 years and 6 months	$112,056	$52,753
$500 extra monthly	15 years and 3 months	$76,698	$88,111
$1,000 extra monthly	10 years and 5 months	$50,679	$114,131

Source: Author calculations at mtgprofessor.com.

It’s kind of mind-boggling, no? It can be a powerful move to get a 15-year mortgage instead of a more conventional 30-year one, but that will lock in higher minimum payments. If you can muster the discipline for it, it’s safer to opt for a longer loan, but then pay more than you have to each month. Even just paying $100 more each month — only $25 per week — can lop five full years off your loan’s life and save you more than $30,000!

When you’re getting pre-approved for your mortgage and as you finalize your loan’s details, make sure that it doesn’t include a prepayment penalty.

 

You can pay very little down, but you may not want to

Finally, homes can be bought with much less of a down payment than you might think. Jonathan Smoke, chief economist at Realtor.com, summarized recent survey findings by the National Association of Realtors, noting that “39% of non-owners believe they need more than 20% for a down payment on a home,” with non-owners, on average, expecting to have to pay 16% down. The reality is that the conventional arrangement is to pay 20% of the home’s value down, borrowing 80% of its value through a mortgage.

It might surprise you to know that you can buy a home while putting down much less. Per Smoke, the average down payment on purchase mortgages in 2016 was 11% — and for those under 35 — who are typically first-time homebuyers — it was 8%.

If you’re getting a conventional mortgage backed by Fannie Mae or Freddie Mac, you may be able to pay as little as 3% down. Federal Housing Administration (FHA) loans are available with only 3.5% down. If you qualify for a VA loan or a USDA Rural Development loan (which applies to lots of not-so-rural areas near cities), you may get a mortgage with a $0 down payment!

Paying little or nothing down is not all good, though. Sometimes, a low down payment will lead to a higher interest rate from the lender, as you’re seen with less skin in the game. Paying little down starts you off with little home equity — and should home values fall, your loan might end up “underwater,” where you owe more than the home is worth. That can make it hard to sell the home, should you need or want to.

Still, being able to pay little down can mean the difference between buying a home and not being able to. Just aim not to buy more house than you can afford, as that can get you in hot water should your financial fortunes change.

 

5 Simple Tips to Skyrocket Your Credit Score Over 800!
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The Hottest Housing Markets Right Now | Realtor Magazine

California cities continue to dominate the list of the hottest housing markets in the country. In Vallejo-Fairfield, Calif., days on the market for listings have dropped by half over the past year, which helped propel it to the top of realtor.com®’s hottest housing market list for February.

Across the country, homes for sale are more limited than ever before, and strong buyer demand mixed with that limited inventory is fueling higher home prices, according to realtor.com®’s latest analysis.

The hottest housing markets for February, according to realtor.com®, are:

California cities continue to dominate the list of the hottest housing markets in the country. In Vallejo-Fairfield, Calif., days on the market for listings have dropped by half over the past year, which helped propel it to the top of realtor.com®’s hottest housing market list for February.

Read more: 20 Markets With Strongest Kickoff to 2017

Across the country, homes for sale are more limited than ever before, and strong buyer demand mixed with that limited inventory is fueling higher home prices, according to realtor.com®’s latest analysis.

The hottest housing markets for February, according to realtor.com®, are:

More homeowners cashing in on their new housing wealth

Homeowners are opening their favorite piggy bank again — their homes.

As home values rise faster than expected, that increased homeowner wealth suddenly seems more enticing. It’s showing up in big remodeling growth and higher profits for retailers like Home Depot and Lowe’s, but it also serves as a warning sign.

Ever since the epic housing crash at the end of the last decade, homeowners have been extremely conservative with their home equity. Even those who had money in their homes kept it there, fearing another downturn in prices. Now, as millions of borrowers come up from underwater on their home loans and many more see their home values jump sizably on paper, borrowing more is back in favor.

 

Home equity lines of credit, known as HELOCs and often serving as second loans, allow homeowners to pull cash out of their homes when they need it. HELOC volume is now up 21 percent in the past two years, to the highest level since 2008, according to Moody’s. It is still nowhere near its housing boom level, when many people treated their homes like ATMs, but the trajectory is definitely pointing higher.

“The more second liens that people take out, it adds a risk that comes from the rising home prices. The fact that people are leveraging their homes more than before makes things more risky,” said Peter McNally, senior analyst at Moody’s.

Borrowers are also putting smaller down payments on home loans now, starting with less home equity either to save cash or because they can’t afford anything more. To put it in perspective, before the last housing boom, the median down payment was just over 7 percent. It then dropped to 3 percent during the height of the boom, as lenders offered all kinds of “creative” loan products that required little to no down payment.

After the crash, much of that lending became illegal and new rules made low down-payment loans more expensive to produce. As a result, down payments rose back above 7 percent again during the recovery. At the end of 2016, the median down payment had fallen to 6 percent, according to ATTOM Data Solutions, and it appears to be headed lower, as lenders offer more low down-payment products.

One wrench in the run to grab equity is the fact that interest rates are rising. That makes loans more expensive and consequently takes the shine off low down-payment loans, which require added mortgage insurance. The fourth quarter of 2016 brought the first significantly higher mortgage rates in more than three years.

“Rising interest rates did seem to have a chilling effect on homebuyers using financing, as evidenced not only by the drop in purchase loan originations but also a corresponding rise in the share of cash buyers, drop in FHA buyer share and a rise in the average down-payment percentage in the fourth quarter compared to the previous quarter,” said Daren Blomquist, vice president at ATTOM.

Homeowners are clearly leaning toward more leverage, but they are doing so in a far different environment than in 2006. Mortgage underwriting is far stricter, especially for home equity loans, and borrowers must prove their ability to repay loans, including all financial documentation. Home equity continues to rise steadily, according to the Federal Reserve Board, and it is still rising faster than borrowers are withdrawing it.

The caution comes amid a growing concern that home prices are overheating. Tight supply, rather than income growth, is pushing prices, and that is not a sustainable scenario. While it is unlikely that home prices will fall nationally, the gains will inevitably shrink, and some of the hottest markets could see sizable retreats, putting pressure once again on the amount of housing wealth.

Home Price Expectations By State | Realtor Magazine

REALTORS® expect modest price gains in home values over the next year. The median expected increase in home prices across the country is 3.5 percent, according to the REALTORS® Confidence Index January 2017 survey, based on the responses of more than 3,800 REALTORS® across the country.

REALTORS® are most bullish about rising home price expectations in Washington, Oregon, and Colorado. Real estate pros in those states believe they will see 4 to 5 percent increases in values over the next year. Meanwhile, oil-producing states like Alaska, North Dakota, and West Virginia had the lowest median expected price changes over the next year.  

“Looking at the values over time in selected states, the median expected price change appears to be increasing again from what was expected in the middle of 2016, indicating that respondents expect demand to remain strong,” according to the report. “In more than half of states, expected price change exceeds the price growth that was expected at the end of January 2016, even as home prices continue to rise.” The map below shows REALTORS®’ median expected price change over the next 12 months by state level.

 

 

What Home Buyers Wish They’d Known | Realtor Magazine

Nearly half of American homeowners recently surveyed said they would do something differently if they were to go through the homebuying process again, according to the NerdWallet’s Home Buyer Reality Report, which analyzed the steps more than 2,200 Americans took to homeownership.

If you want to help prevent buyers’ remorse, the following are some things you can focus on with your clients. These are the top things consumers say they regretted:

• 20 percent wished they had saved more money before buying a home;
• 13 percent would do more research on the mortgage-lending process;
• 14 percent would have shopped around more for a mortgage;
• 13 percent would research the homebuying process more.

 

The majority of buyers’ remorse seems to stem around the financing of a home purchase, the report finds.

“According to our research, borrowers who don’t understand the mortgage process or don’t know enough about their own credit history tend to hit obstacles or be rejected when applying for mortgages,” says Tim Manni, mortgage expert at NerdWallet. “They also tend to feel regret after their deal is done, even if they succeeded in buying a home. That tells me borrowers aren’t doing enough research—on themselves or the mortgage process—before applying for a home loan.”

Forty-one percent of Americans surveyed who applied for a mortgage say they felt they were not aware of all of their loan options during the lending process. Twenty-eight percent of consumers say they felt like they were not a priority to their mortgage professional during the loan process.

Overall, 42 percent of American homeowners called the homebuying process stressful. Thirty-two percent said it was “complicated” and 21 percent called it “intimidating,” the survey found. That said, 41 percent of respondents also called the process manageable and 30 percent called it rewarding. Thirty-two percent of respondents say their real estate agent made the homebuying process easy.

Mortgage Apps Surge as Rates Inch Lower | Realtor Magazine

A slight decline in mortgage rates sent total mortgage application volume up 5.8 percent last week on a seasonally adjusted basis compared to the previous week, the Mortgage Bankers Association reported Wednesday. Applications for home purchases, a gauge of future homebuying activity, rose 7 percent, while refinance applications increased 5 percent, reaching the highest level since December. 

Still, applications should be much higher, the MBA notes. Applications for home purchases are 5 percent lower than a year ago, and applications for refinances are 45 percent lower. Interest rates are about 50 basis points higher than a year ago.

The average on a 30-year fixed-rate mortgage decreased slightly to 4.3 percent last week from 4.36 percent, the MBA reported. The dip is expected to be short-lived. Earlier this week, the Federal Reserve cautioned that a March rate hike was looking more likely.