Yajnesh Rai

More Buyers Putting Down Less on a Home | Realtor Magazine

A 20 percent down payment is no longer the norm. In the past year, 1.5 million borrowers purchased their homes with down payments of less than 10 percent, according to Black Knight Financial Services. That marks a seven-year high.

A growing number of home shoppers are financing more than 90 percent of their home purchase.

“The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low down payment loans have ticked upward in market share over the past 18 months as well,” says Ben Graboske, executive vice president at Black Knight Data & Analytics. “In fact, they now account for nearly 40 percent of all purchase lending.”

The study showed that the segment with the largest growth in low down payment levels has been from purchasers making a 5 to 9 percent down payment.

Also, Graboske notes that the low down payment loans of today are nothing like the ones that were blamed on causing the housing crash. Half of all low down payment loans at that time were second loans or called “piggyback loans.” Today’s mortgages are mostly single, first liens, Graboske notes. The loans of the past also were mostly adjustable-rate mortgages, which are virtually nonexistent among low down payment mortgages today, according to the Black Knight report.

Instead, most of the loans issued nowadays are fixed-rate. Borrowers’ credit scores are also about 50 points higher than those between 2004 and 2007, according to Black Knight.

The growth of low down payment loans has mostly been triggered by new programs offered by mortgage financing giants Fannie Mae and Freddie Mac, which brought back 3 percent down payment loans in 2014. They require borrowers to pay mortgage insurance, just like the FHA does.

So far, defaults on recent low down payment loans have been modest, Black Knight reports. But economists note that’s mostly because home prices are rising fast and borrowers have been gaining equity quickly.

Owners Tap Equity to Start Businesses | Realtor Magazine

Home owners are turning to home equity not just for home renovations but also to launch new businesses. Equity was used as a source of capital to launch 284,618 U.S. businesses—7.3 percent of all businesses, according to a newly released analysis by the U.S. Census Bureau that culls 2014 data.

According to the study, the industries that use home equity at some of the highest rates are accommodation and food services, other services, retail trade, and manufacturing. These industries tend to average $50,000 to $99,999 of funding for startup capital.

The analysis found that businesses owned by women are more likely than men to use home equity as a source of startup capital. Also, Asians, American Indian and Alaskan Natives, and Pacific Islanders or Hawaiians tend to leverage home equity at a higher rate than whites or blacks.

Still, even though African Americans statistically tend to have lower rates of homeownership compared to others, those who do own have a slightly above-average use of tapping home equity loans to start businesses, the analysis found.

“Equity in homes not only plays a significant role in providing capital to start U.S. businesses in general, it is especially important in helping women and racial minorities in the U.S. start new businesses,” the National Association of REALTORS® wrote about the study on its blog Eye on Housing.

Pre-approved vs. Pre-qualified for a Home Loan | Zillow

When you want to make an offer on a house, chances are the seller will want to know whether you’re pre-approved or pre-qualified for a loan. What difference does it make? It depends on you who ask. We’ll explain.

What’s the difference?

Many say that pre-qualification is the preliminary step in the mortgage process, where a lender runs your credit and talks to you about your goals, and pre-approval takes it one step further by requiring verification of your pay stubs and tax returns. But in reality, these two terms are often used interchangeably. According to the Consumer Finance Protection Bureau, there is often not much difference between pre-approval and pre-qualification. Sometimes, different lenders may even have different definitions for each. Confusing, right?

So which one do you need?

The end goal is the same: to give sellers the confidence to accept your offer. So make sure you understand what you’re getting, and find out exactly how your lender defines “pre-approval” or “pre-qualification.” Talk to your real estate agent to determine which is more credible in your market.

Regardless of what your lender calls it, you’ll receive a letter that states they are willing to let you borrow a specific amount of money. But remember, neither pre-approval nor pre-qualification (we’ll stick with “pre-approval” from here on out to make it simple) is a guarantee that you’ll get a home loan. Neither is an offer to lend, a commitment to make a loan or a guarantee of specific rates or terms. The lender may want additional documentation and will need to do an appraisal of your new home before actually extending a loan.

That means even though you have the pre-approval letter in your hands, this is NOT the time to go buy a new car, quit your job or run up credit card debt. Any big changes to your finances or debt load are likely to be picked up once you actually apply for a mortgage loan. Lenders aren’t committed. But on the flip side, neither are you. A lot of buyers think once they’ve got a pre-approval letter they have to use that lender. You don’t.

Why you should seek pre-approval

At this point, you may be thinking that the right time to get pre-approved is right when you find the home you want to buy. But getting a pre-approval letter at the beginning of your home search has many advantages.

First, you’ll know upfront what kind of loan you will be approved for. That can help set your price range. You can also get pre-approval from multiple lenders. Remember, just as the lenders haven’t fully committed to give you a loan, you don’t have to fully commit to getting your loan from them. Even if you use the letter as part of an offer, you are still free to get your loan elsewhere if you find a better deal. Use the pre-approval process to compare rates and lenders. And don’t worry about multiple credit pulls damaging your credit score. Within a two-week period, all mortgage inquiries only count as a single pull.

Second, you’ll be able to move fast. Pre-approval letters are good for a specific period of time, usually 60 to 90 days. Getting pre-approved early can help you be ready to send in an offer ASAP because you won’t have to wait a couple of days for the lender to issue you a pre-approval letter.

Pre-approval also signals to everyone else, from real estate agents to sellers, that you are serious. In a competitive market this is particularly important. Let’s say you find a home you love and put in an offer saying you’re a pre-qualified. Someone else makes an offer on the same home but they are pre-approved. Guess which offer is likely to be accepted? In a very hot market, sellers may not even want to bother looking at your offer until you are pre-approved. If you’re looking at bank-owned homes, they require that you submit a pre-approval letter before accepting your offer.

So once you are serious about this whole house-buying thing, how do you get a pre-approval? Start with Zillow’s pre-approval tool. Fill it out online to find a local lender in minutes who can help you get pre-approved. The lender will conduct a preliminary review to determine your loan qualifications based on their guidelines.

What you’ll need

To get pre-approved you will likely need to provide the following documentation:

• Your W-2 from the past two years
• Your pay stubs for the past three months
• Your tax returns from the past two years
• Your checking or savings bank statements for the past three months (this will likely show your down payment funds as well)
• Statements for all your other assets (stocks, bonds, retirement accounts) for the last two months
• The name and phone number of your landlord (if you are renting) or your current mortgage documents
• Your divorce decree, if applicable
• If you are self-employed: Your business tax returns for the past two years in addition to your year-to-date profit-and-loss statement and year-to-date balance sheet
• Your Social Security number and permission to pull a credit report. (Many lenders will pass on a $30 fee to pull your credit.)

You don’t need to wait to gather all of that before checking out the tool. In fact, depending on your circumstances and if your credit score is especially stellar, you may not need some of the documentation at this stage, but it’s good to have an idea of what you’ll need. Once you’ve provided the required documentation, a pre-approval letter should be in your hands within 24 to 48 hours.

Gulp. What if you can’t get pre-approved?

Work to improve your credit score, pay down debt and make sure you pay your bills on time. Check your credit score for any errors and correct them. Ask your lender what the roadblock was and work to remove it for next time.

2 Major Reasons Why Inventory Is So Low | Realtor Magazine

Inventory of available homes on the market is the lowest it’s been in two decades, but the reasons may surprise you. Two of the likely culprits are baby boomers and homeowners who are simply satisfied with their home, according to realtor.com®’s Housing Shortage Study. 

Baby boomers are showing a desire to age in place in their current homes, and their refusal to sell is creating a clog in the market, according to the study. Eighty-five percent of baby boomers surveyed say they are not planning to sell their home in the next year. That means 33 million properties—many of which are urban condos or suburban single-family homes—will stay off the market. Many of those properties would be popular choices for millennials, a generation still largely waiting in the wings to break into homeownership. 

“Boomers, indeed, hold the key to those homes the market desperately needs, both in the urban condo and the detached suburban home segment,” says realtor.com® chief economist Danielle Hale. “But with a strong economy and rising home prices, there’s really no reason for established homeowners to sell in the short term. Although downsizing might be on the minds of boomers, they face the same inventory shortages and price increases plaguing millennials.”

Furthermore, 63 percent of respondents to the survey indicate that their current home meets the needs of their family. They cite low interest rates (16 percent), recently purchasing their home (15 percent), and needing to make home improvements and low property taxes (each at 13 percent) as reasons not to sell. “Life events drive real estate transactions,” Hale says. “When the majority of homeowners feel their family’s needs are being met by their current home, there is nothing compelling to them to put their home on the market.”

There may be hope that more starter homes will hit the market soon. Possibly offsetting the low supply of starter homes, which is down 17 percent year over year, 60 percent of respondents to realtor.com®’s survey who did say they plan to sell in the next year are millennials who want to move to a larger home or one with nicer features.

“The housing shortage forced many first-time home buyers to consider smaller homes and condos as a way to literally get their foot in the door,” says Hale. “Our survey data reveals that we may see more of these homes hitting the market in the next year, but whether these owners actually list will depend on whether they can find another home.”

Mortgage Rates at Lowest Point in 6 Weeks | Realtor Magazine

The 30-year fixed-rate mortgage reversed course this week, averaging 3.90 percent. 

“After holding relatively flat last week, the 10-year Treasury yield fell 4 basis points this week,” says Sean Becketti, Freddie Mac’s chief economist. “The 30-year mortgage rate moved in tandem with Treasury yields.”

Freddie Mac reports the following national averages for the week ending Aug. 10: 

• 30-year fixed-rate mortgages: averaged 3.90 percent, with an average 0.5 point, dropping from last week’s 3.93 percent average. Last year at this time, 30-year rates averaged 3.45 percent. 
• 15-year fixed-rate mortgages: averaged 3.18 percent, with an average 0.5 point, the same average as last week. A year ago, 15-year rates averaged 2.76 percent. 
• 5-year hybrid adjustable-rate mortgages: averaged 3.14 percent, with an average 0.5 point, falling from last week’s 3.15 percent average. A year ago, 5-year ARMs averaged 2.74 percent.

Luxury Home Prices Soar Even More | Realtor Magazine

Sale prices of luxury homes in the second quarter of the year surged 7.5 percent compared to a year ago. It’s the first time the luxury market’s gains outpaced the rest of the market since 2014, according to data by the real estate brokerage Redfin. Redfin defines the luxury markets as the top 5 percent of the priciest homes sold in each city.

But one of the main reasons behind the luxury market’s strong performance may be because sellers have gotten more realistic about their list prices, CNBC reports. Luxury sellers are asking a little less for their homes, which has spiked more interest among buyers, and in turn, is helping to boost prices once again too. 

“There have been several years of a large disconnect between luxury sellers and market conditions, and what we’ve noted in all our research is that sellers are now much more willing to travel farther to meet the buyers,” Jonathan Miller, president and CEO of Miller Samuel, a real estate appraisal and consulting firm, told CNBC.

Miller cites a recent example: A home in Brooklyn, N.Y., recently sold for $15 million, which was a 40 percent discount of its original price. 

Sales of homes priced above $1 million surged 19 percent in June compared to a year ago, according to the National Association of REALTORS®. That marks a bigger sales gain than the lower price points. 

The spike in sales has caused a lower supply of luxury homes for sale. Listings at or above $1 million dropped 9.4 percent compared to a year ago, according to Redfin’s data. 

“The housing shortage is now affecting the top of the housing market,” says Nela Richardson, Redfin’s chief economist. “Yet despite the strong uptick in prices, the luxury market is not nearly as competitive as the rest of the market. Only 1 in 50 luxury homes sold above list price in the second quarter, compared to more than 1 in 4 homes in the bottom 95 percent.”

Loan Demand Gets a Lift From Rate Drop | Realtor Magazine

Interest rates dropped last week, giving homeowners and home buyers more incentive to lock in a lower rate as they apply for a mortgage. Total mortgage application activity for home buying and refinancing rose 3 percent on a seasonally adjusted basis compared to the previous week, the Mortgage Bankers Association reported Wednesday. Applications, however, are still down by 25 percent from a year ago. 

Refinance applications saw the most activity last week, increasing 5 percent week over week. Still, refinance applications are down 44 percent from a year ago when mortgage rates were lower. 

“Mortgage rates decreased last week, which led to the highest volume of refinance applications since mid-June,” says MBA chief economist Mike Fratantoni. 

The 30-year fixed-rate mortgage averaged 4.14 percent last week, down from 4.17 percent the week prior, the MBA reports. 

Meanwhile, mortgage applications for purchasing a home saw a 1 percent increase compared to the previous week. 

“With rates trading in a narrow range, the purchase market continues to show strength, with application volume running about 7 percent ahead of last year,” Fratantoni says.

5 Financial To-Dos for First-Time Buyers | Realtor Magazine

First-time home shoppers come to you eager to buy, but there’s a lot they need to do before they start touring listings and submitting offers. Make sure you keep them on track so that the path to closing is smooth. Here are a few items you can remind them to do to make sure their finances are in order.

1. Determine total monthly housing budget. 

What can your clients really afford? The total should include estimated taxes and home insurance costs, too. After all, in some places, that can double your mortgage payment. Buyers should be encouraged to talk to an insurance agent to get an estimate of the costs in the areas in which they’re looking to buy. Mortgage financing giant Fannie Mae recommends home buyers spend no more than 28 percent of their income on housing. Buyers may start to struggle financially when housing costs take 30 percent or more of their income, financial experts warn.

2. Factor in the closing costs. 

Buyers shouldn’t be blindsided by the cost of a transaction. Be sure you explain everything from origination fees, title and settlement fees, taxes, and prepaid items (such as homeowners insurance or homeowners association fees). They’ll get more precise numbers from their lenders as they get through the paperwork, but a general estimate will help them ensure they’re shopping within their budget from the onset.

Read more: 4 Expenses Your Buyers Don’t Expect

3. Examine creditworthiness. 

Will your client even be able to qualify for a loan? Buyers should get a free annual credit report and look for any errors or unresolved issues. They should contact the credit reporting bureau immediately if they spot any errors. They also might want to determine their FICO credit score, which many lenders use to help determine an interest rate for financing. 

4. Prepare documents. 

Buyers will need to be ready to show a lot of documents when applying for a home loan. These include pay stubs, bank account statements, W-2s, tax returns for the past two years, statements from current loan and credit lines and names and addresses of landlords for the past two years. Gathering these together ahead of time will help make the process smoother and faster.

5. Get preapproved. 

This not only helps buyers get a better understanding of what they can truly afford, but it also puts them in a better position to submit an offer when they find a home they love. Also, financial planners say applying to multiple lenders in the same month may help boost a buyer’s chances of getting a loan approved at the best rate possible without dinging their credit score too much. 

The Home Designs Gaining, Losing Popularity | Realtor Magazine

Builders are slowly switching focus from the $500,000-plus luxury market to more moderate price points, particularly when it comes to single-family move-up homes. And the shift is influencing the types of materials and upgrades becoming popular in new homes, according to Home Innovation’s 2017 Builder Practices Survey. It turns out that high-end materials aren’t limited to construction of luxury real estate.

• Crazy for quartz. Despite being one of the priciest products on Home Innovation’s list of building materials, quartz had its best year in 2016. Quartz surfaces in the bathroom appeared in 13 percent of new homes last year, up from 9 percent in 2015. In the kitchen, quartz countertops were even more popular, appearing in 15 percent of new homes last year compared to 9 percent in 2015.
• Nickel gains ground. Nickel faucets are also gaining popularity in kitchens, outselling stainless steel, chrome, and bronze. In the bathroom, nickel is also being used more often, though it fell just shy of chrome in popularity. 
• Hardwood, vinyl are tops for floors. High-end solid hardwood and luxury vinyl tile are popular for kitchen floors. But engineered hardwood and ceramic tile each rose by 3 percentage points in market share.
• No more bubble baths? The jetted tub is continuing to lose favor, going from being installed in about 15 percent of new homes in 2015 to 11 percent in 2016.
• Granite and marble are on the outs. The share of new homes with natural granite and marble showers and bathtubs dropped from 12 percent to 9 percent last year. High-end enameled cast iron and granite sinks also lost favor. Lower- to mid-range vitreous china and enameled steel sinks each increased in popularity. 

Understanding the Role of the Real Estate Agent – Zillow Porchlight

The road to homeownership can be bumpy, and it’s often filled with unexpected turns and detours. That’s why it makes sense to have a real estate pro help guide the way.

The road to homeownership can be bumpy, and it’s often filled with unexpected turns and detours. That’s why it makes sense to have a real estate pro help guide the way.

While real estate websites and mobile apps can help you identify houses you may be interested in, an experienced agent does much more, including:

1. Guide. Before you tour your first home, your agent will take time to learn more about your wants, needs, preferences, budget and motivation. A good real estate agent will help you narrow your search and identify your priorities.

2. Educate. You should expect your agent to provide data on the local home market and comparable sales. The home-buying process can be complicated. A good agent will explain the steps involved – in a manner that makes them understandable – and provide counsel along the way.

3. Network. An agent who is familiar with your target neighborhoods will often know about homes that are for sale – even before they’re officially listed. Experienced agents tend to know other agents in the area and have good working relationships with them; this can lead to smooth transactions. Your agent may also be able to refer you to trusted professionals including lenders, home inspectors and contractors.

4. Advocate. When you work with a buyer’s agent, their fiduciary responsibility is to you. That means you have an expert who is looking out for your best financial interests, an expert who’s contractually bound to do everything in their power to protect you. If you find yourself in a situation where the same agent represents both the buyer and seller, things can get trickier, advises Scottsdale, Arizona-based real estate agent Dru Bloomfield.

“A lot of people think they’ll get a lower price by going straight to the listing agent, but that’s always not true,” she says. “If I was representing both the buyer and seller, I’d be hard-pressed to take a low-ball offer to the seller. But, as a buyer’s agent I’d do it, because I have no emotional ties or fiduciary responsibility to the seller. Buyers should work with an agent who can fully represent them.”

5. Negotiate. Your agent will handle the details of the negotiation process, including the preparation of all necessary offer and counteroffer forms. Once your inspection is done, the agent can also help you negotiate for repairs. Even the most reasonable consumers can become distraught when battling over repair requests; an agent can do “the ask” without becoming overly emotional.

6. Manage minutia. The paperwork that goes along with a real estate transaction can be exhaustive. If you forget to initial a clause or check a box, all those documents will need to be resubmitted. A good real estate agent understands the associated deadlines and details and can help you navigate these complex documents.

7. Look out. Any number of pitfalls can kill a deal as it inches toward closing; perhaps the title of the house isn’t clear, the lender hasn’t met the financing deadline or the seller has failed to disclose a plumbing problem. An experienced real estate agent knows to watch for trouble before it’s too late, and can skillfully deal with challenges as they arise.

Professional real estate agents do so much more than drive clients around to look at homes. Find an agent you trust and with whom you feel comfortable working; you’re sure to benefit from their experience, knowledge of the local market and negotiation skills.