The mortgage lending process can be somewhat intimidating, especially for first-time home buyers who've never been through it before. There's so much money on the line, and so many steps along the way.
Below, we have assembled a "top-seven" list of mortgage tips for home buyers. Once you finish reading this list, you'll have a much better understanding of how it all works.
1. Study the mortgage types.
Each type of mortgage loan comes with its own set of pros and cons. Some products are ideal for certain types of buyers, but disadvantageous for others. To decide which type of loan is right for you, you'll need to know the pluses and minuses of each type. Start by learning the pros and cons of (A) conventional versus government-backed loans, and (B) adjustable-rate versus fixed-rate loans. These are your two biggest choices.
2. Consider your staying time.
How long do you plan to stay in the home? This will often determine which type of home loan is best for you. For instance, an adjustable-rate mortgage (ARM) could lower your interest rate up front, when compared to a fixed-rate mortgage. But if you stay in the home beyond the ARM loan's introductory period, you'll face the uncertainty of interest rate adjustments. The 30-year fixed-rate mortgage is the most popular type of loan these days.
3. Consider all types of lenders.
Many first-time home buyers don't realize they can find mortgage financing locally, at local banks and credit unions. It's true. So when shopping around for a lender and a loan program, be sure to look beyond the "big banks." Don't limit yourself. Keep your options open. If you have an existing relationship with a bank or credit union, ask them if they offer home loans.
4. Shop for the best rate.
Mortgage lenders will offer interest rates based on your credit history and credit score. When your credit is good, lenders might offer you a lower rate. When your credit is bad, the opposite can be true. Each lender defines their comfort level differently, so interest rates may vary from one company to the next. This is why it’s so important to get offers from multiple lenders.
5. Consider paying points.
One "point" is equal to one percent of the loan amount. (On a mortgage loan for $200,000, a single point would equal $2,000.) Some home buyers pay points at closing in order to lower their interest rate over the life of the loan. It's a tradeoff. You can pay more upfront, and out of pocket, to lower your total interests costs over time. This can be a wise strategy over the long term, but it might not work out well for a shorter stay. Ask your lender to show you pricing strategies both with and without points being paid.
6. Don't go it alone.
Most of us have friends or family members who own homes. These are good sources of information. Somebody who has been through the process and seen mortgage loans from "all sides" can often provide great information. You should also enlist the support of your real estate agent. A real estate agent is not a mortgage advisor, but most are well-informed about the mortgage process.
7. Factor in PMI.
PMI stands for private mortgage insurance. If your down payment on a house is less than 20%, your lender might require that you pay PMI. This will increase the size of your monthly payments. If you can afford to put 20% down, you'll avoid having to pay PMI. It’s possible to get a mortgage loan with a down payment below 20%, but you’ll probably end up paying mortgage insurance of some kind — either private or government. When you get mortgage estimates from lenders, any required mortgage insurance should be included in the quote. But ask about it anyway, just to be sure.
Spring 2018 Home-Buying Season to Be Marked by Low Inventory
Home buying activity tends to pick up in the spring, as more and more buyers shake off the winter chills and prepare to enter the real estate market. This year, the spring home-buying "season" will be marked by low inventory across much of the country. And that will keep things competitive for home buyers seeking a property to purchase.
42: Number of Months Inventory Has Declined
Inventory has been the big housing headline for the last couple of years. And real estate markets nationwide continue to contract, as demand outweighs the supply of homes for sale.
According to Danielle Hale, chief economist for realtor.com, inventory within the nation's housing market has been dropping steadily for years.
"This year [2018] there is even less inventory than last year," she told Forbes recently. "According to our February 2018 data inventory is down 8.5% from last February."
According to Hale, housing market inventory (the number of homes listed for sale) has declined for 42 consecutive months. That's nearly a four-year trend!
Granted, these are national averages. Housing trends and conditions can vary widely from one city to the next. For instance, larger metro areas tend to have more demand for housing, and often less inventory, than smaller surrounding cities. And the big tech hubs — like Austin, Seattle and Denver — are among the tightest real estate markets in the country as we enter spring 2018.
Tight inventory is affecting sales volume too. "We expect little growth in sales in 2018, given tight inventories," said Gregory Daco, chief U.S. economist at Oxford Economics in New York.
There has been an uptick in new construction permits nationwide. But it will be a while before this has any measurable impact on housing markets across the country.
According to Aaron Terrazas, as senior economist at Zillow:
"New construction has showed signs of perking up, but remains well below estimates of demand. More importantly, builders face rising labor, materials and land costs making it difficult to build at a price point attractive to entry-level buyers."
What It Means for Buyers and Sellers
For home buyers, these trends highlight the importance of working with an experienced real estate agent when making a purchase. An agent can help you navigate the local real estate market and make a strong offer in a timely fashion. This is the key to success in a tight, competitive housing market. And those are the kinds of conditions we are seeing nationwide, as we enter the spring home-buying season.
Sellers can benefit from the high demand and relatively low supply we are seeing right now. Under these conditions, homes tend to sell faster and for a higher percentage of the initial list price. Multiple-offer situations are also more common when housing demand exceeds the available supply.
All in all, it should be an interesting spring for the real estate market.
The Benefits of Staging When Selling a Home
Seller's market conditions persist in cities across the country, as inventory continues to fall short of demand. Under these kinds of conditions, sellers typically enjoy competing offers from buyers.
But that doesn't mean sellers should skimp on the home staging. By staging your house for buyers, you can increase the chance for a quick sale and a full-price offer. And those are good things!
What Is Home Staging?
Home staging is when you take proactive steps to make your house more appealing to the majority of buyers. "Majority" is the key word here. Some people will dislike a certain property no matter what kind of staging is done. Taste is subjective, after all. But there are certain steps you can take to make your property appeal to the majority of potential buyers. And that's precisely what home staging is all about.
The staging process can include such things as:
* Landscaping the yard, when applicable
* Painting the inside and/or outside of the house
* Replacing outdated fixtures with modern ones
* Arranging, adding, or removing furniture to maximize space
* De-cluttering the entire house
* Cleaning the house thoroughly from top to bottom
In some cases, these kinds of actions might be unnecessary or even cost-prohibitive. For example, a new or recently updated home with modern fixtures won't require any new knobs, sink handles, or light fixtures. But an older home with outdated fixtures might need extra attention (unless the fixtures are antiques that add charm).
What's the Point?
Now you know what home staging is, and what it involves. But what's the point? What can you get out of it, as a home seller?
As a seller, your mission is to sell your house as quickly as possible, and for the best possible price. Staging can help you achieve these goals, and in several ways. It creates aesthetic value, which helps to support your asking price. It presents your home in the best possible light, which will make buyers more inclined to make an offer.
Above all, effective home staging helps you set your house apart from others that are listed for sale in the area. This is especially important in a crowded market with many similar properties for sale.
When buyers look at a well-staged home, they tend to say things like:
- "I got a great vibe from that house."
- "I didn't want to leave."
- "I could see myself living there."
- "The owners have taken good care of that house."
- "It seems nicer than the other homes we've looked at."
This is the kind of mindset that can lead to an offer.
Home staging allows you to create a favorable impression in the mind of potential buyers. And these kinds of impressions tend to "accumulate" as the buyer moves through the home. So if you stack enough of them in your favor, you'll have a much better chance of landing a strong offer. And that's your primary goal as a seller.
How to Prepare for a Competitive Real Estate Market
Home buyers who are planning to enter the real estate market can benefit from having their financing arranged ahead of time. What does that mean exactly, and why is it so important in the current real estate market? Here's what you need to know.
Many real estate markets across the country are highly competitive right now due to a lack of supply. There are plenty of people in the market looking to buy a home, but there's not enough inventory to go around. This supply and demand imbalance puts upward pressure on home prices and makes things more competitive for buyers.
Mike Fratantoni, chief economist for the Mortgage Bankers Association, recently cited this as one of the primary factors influencing the market right now. "The major constraint in the market right now is the lack of supply," Fratantoni told CNBC. "The absolute number of units on the market is near an all-time record low."
Competing in a Tight Real Estate Market
In a competitive real estate market, home buyers want to have every possible advantage going for them. Among other things, home buyers can benefit from having their financing lined up ahead of time, before they even start looking at houses.
This might mean one of two things, depending on your money situation:
- If you're planning to pay cash for a house, the seller will probably want to see bank statements or a "proof of funds letter" from the bank proving that you have the funds in the bank.
- If you're like most home buyers, and you will be using a mortgage loan to help finance your purchase, the seller will probably want to see that you've been pre-approved by a mortgage lender already.
Benefits of Mortgage Pre-Approval
Mortgage pre-approval is basically a kind of financial pre-screening process. This is where a bank or mortgage company reviews your current financial situation to determine (A) if you're a good candidate for a home loan, and (B) how much you can borrow. This helps you, the buyer, in two ways:
- Getting pre-approved for a mortgage can help you narrow down your housing search to the kinds of properties you can actually afford, based on your financing. This will make your house-hunting process more efficient.
- Mortgage pre-approval could also make sellers more inclined to take your offer seriously, since you've been working with a mortgage lender already.
Both of these things could give you a much-needed advantage in the marketplace. This is especially important in an active real estate market where homes are selling quickly, and where multiple offers are a common occurrence.
The current inventory situation across the country also underscores the importance of having professional help from an experienced real estate agent. An agent can help you find a property that meets your needs, evaluate the seller's asking price, and make a strong offer in a timely fashion. This is the key to success in a competitive real estate market.
Mortgage Rates Keep Climbing, According to Industry Survey
Should I buy a home now, or wait until later in the year? Will I pay more if I postpone my purchase?
These are perennial questions from home buyers nationwide. And a recent upsurge in mortgage rates has some buyers rushing to close on their loans, out of concern that rates could keep rising in the weeks ahead.
On March 8, 2018, Freddie Mac reported the results of its latest survey of the mortgage industry. This long-running survey goes out to more than a hundred lenders across the country, every week. Freddie Mac's research team then compiles the results into a weekly mortgage rate average that gives us some useful insight into industrywide trends.
Rates Climb to Highest Level Since 2014
According to the latest report, the average rate for a 30-year fixed-rate mortgage loan rose to 4.46%, for the week ending on March 9, 2018. That percentage is significant for two reasons:
1. It marks nine straight weeks of rising loan rates. So it's a trend -- not a fluke.
2. It's also the highest average for 30-year mortgage rates since January of 2014.
According to Freddie Mac:
"The 10-year Treasury yield has been bouncing around in a narrow 15 basis point range for the last month. While the yield on the 10-year Treasury is currently below the high of 2.95 percent reached two weeks ago, mortgage rates are up for the ninth consecutive week. The U.S. weekly average 30-year fixed mortgage rate rose 3 basis points to 4.46 percent in this week's survey, its highest level since January 2014."
It bears repeating: Mortgage rates haven't been this high since the start of 2014. And it all happened over the last few weeks.
Average rates rose for other commonly used products as well, and that includes the 15-year fixed-rate home loan and the 5/1 adjustable mortgage (ARM).
Still, the Housing Market Marches On
But the recent spike in rates might not last long. Economists from Freddie Mac said they "anticipate rate increases will be gradual [throughout 2018], allowing housing market activity to maintain momentum." In other words, they don't expect the recent upward trend to put a damper on home-buying activity in the U.S.
Home Prices Still Rising in Most Cities
Meanwhile, home prices continue to rise in most parts of the country. And this too has added a sense of urgency to the housing market, particularly among home buyers who are eyeing a purchase in the near future.
In many cities across the U.S., real estate markets are experiencing a shortage of homes for sale. This comes at a time when demand for housing is either steady or rising in most markets. This supply-and-demand imbalance is putting upward pressure on home prices, as evidenced by the 6% to 7% increase in U.S. home values over the last year.
What does the future hold? No one can say for certain. But recent trends within the housing and mortgage industry seem to make a strong case for buying a home sooner rather than later. Buyers who postpone their purchases until later in 2018 could encounter higher housing costs.
The Different Types of Home Inspections Explained
Home inspections are a common source of confusion for first-time home buyers, because there are several different types of inspections that can take place. Here is an overview of the most common types of inspections you could encounter during the buying process.
Primary Home Inspection
When you hear people talk about a "home inspection," they are generally referring to the primary inspection that is conducted by a licensed home inspector. It's always a good idea to have a property professionally inspected before buying it.
The inspector will examine the home's foundation, roof, electrical system, installed appliances, heating and cooling systems, and overall condition. When he's finished, he will give you a detailed inspection report that explains his findings.
Keep in mind that when you buy a house, you are generally buying it in "as-is" condition (unless specific provisions are added to the contract saying otherwise). For this reason, you want to make sure you know what is, and is not, working in the home. You'll also want to know what repairs might be needed, and how much they might cost. For all of these reasons, the primary home inspection is essential.
Termite Inspections
Home inspectors typically don't look for termites or other wood-destroying insects. So this is usually a separate inspection. This inspection is done on behalf of the buyer and the mortgage company. You might even have to provide a copy of the inspection for your mortgage lender. This is especially true if you live in an area where termites are common. You might be able to skip this process if termites are not commonly found in your area. Termite damage can be extensive and expensive. So these inspections are usually worth the cost.
Well Water Inspections
Depending on where the home is located, you may also need a well water test to make sure the water is potable (safe to drink).
Home Appraisal / Appraiser's Inspection
If you are using a mortgage loan to buy a house, your bank or lender will send a licensed home appraiser out to evaluate the property. The appraiser is primarily concerned with the market value of the home. He will also examine the overall condition of the property, as it relates to the value.
Final Walk-Through Inspection
Home buyers typically perform one last inspection near the end of the real estate transaction, just to make sure the house is in the same condition it was in when they agreed to buy it. During this final "walk-through," as it is known, you'll want to ensure that everything is in working order, and that the house has not been damaged in any way since you first signed the contract.
As each inspection takes place, keep in mind that no home is perfect. You'll need to weigh the pros and cons of every house in order to make the right purchasing decision.
You can expect a number of inspections to take place during your home buying process. Most of these inspections are for your benefit, as the home buyer, so you need to take each inspection seriously and consider the outcome carefully.
Why Pricing Is So Important When Selling a Home
Do you plan to sell a home in 2018? If so, it's time to start thinking about your asking price. Better yet, you could work with an experienced real estate agent to determine your list price. It's one of our specialties. In this article, we'll look at the reasons why it's so important to price a home effectively, in order to get a quick sale.
Pricing Your Home to Sell Quickly
When selling a home, you can set the initial asking price in one of three ways. You can price it to sell quickly, eventually, or not at all. The first option is the one that appeals to most sellers, for obvious reasons.
The primary goal when selling a home is (A) to get the highest possible price, and (B) to sell within the shortest time possible. So let's talk about how you would price a home to sell it more quickly.
When selling a home, it can be helpful to change your mindset from "owner" to "seller." In reality, you're both of these things. You're the person who owns the home, and you're also the one who is selling it. But you'll want to think more like a salesperson than a homeowner, especially when it comes to pricing your home for the market.
Here's a short maxim to help you adopt a salesperson's mindset: "It's not personal. It's business." You can repeat this little mantra when determining your asking price, and when negotiating with buyers. The personal and emotional connection you have to your home does not translate into market value.
Depending on when you first purchased your home, there's a good chance it has risen in value. The reason is that home prices across the country have generally risen over the last few years -- and they continue to do so in most cities. So you'll want to have the property evaluated by a real estate agent prior to setting your price. Your agent will review recent home sales in the area and other relevant data to figure out what your house might be worth in the current market.
The Market Determines Value
And speaking of the market, that is what determines how much your home is worth. The primary market forces of supply and demand dictate how much a seller can charge for an asset (in this case, a house). So it's important to analyze the broader real estate market -- and not just the house itself -- when deciding on your initial asking price. This is another area where an experienced agent can guide you.
Setting the list price too high is a common mistake among sellers, particularly those who go it alone without an agent's help. We live in the Information Age. Thanks to the internet, home buyers are more price-savvy than ever before. Most buyers conduct a lot of research before entering the real estate market. So it's important that you establish a realistic asking price based on (A) recent sales activity and (B) the unique features of your home.
Pricing is one of the "Three P's" of a solid home-selling strategy. The other two P's are preparation and promotion. If you want to sell a house quickly and for top dollar, you must prepare it for the market, price it wisely, and promote it widely.
Have questions? Please contact me if you have questions about selling your home, or if you'd like a market analysis to help determine a good price. This is one of my specialties. I can help you avoid common pitfalls and support your price with current sales data.
Heads Up Home Buyers: Mortgage Rates Just Took a Big Jump
Are you thinking about buying a home in 2018? Are you on the fence about entering the real estate market? If so, you might want to consider buying sooner rather than later. Mortgage rates just rose again, and economists from Freddie Mac and other groups are predicting that they could rise gradually throughout 2018.
Mortgage Rates Hit Highest Level Since December 2016
During the week of February 8, 2018, the average rate for a 30-year fixed home loan rose to 4.32%. Rates haven't been that high since December 2016. This is based on the weekly mortgage industry survey conducted by Freddie Mac. The average rates for 15-year fixed mortgages and 5/1 ARM loans rose as well. Those are the three categories tracked by this survey.
According to the Freddie Mac report:
"The U.S. weekly average 30-year fixed mortgage rate rocketed up 10 basis points to 4.32 percent this week. Following a turbulent Monday, financial markets settled down with the 10-year Treasury yield resuming its upward march. Mortgage rates have followed. The 30-year fixed mortgage rate is up 33 basis points since the start of the year."
This is actually the continuation of a trend that began a few weeks ago. For a while now, mortgage rates have been following a steady upward path. During the latter half of 2017, and into the beginning of 2018, the average rate for a 30-year mortgage hovered below 4%. Then it crossed that threshold and shot up by 25 basis points (0.25%), which brings us up to the latest reading.
Chart: 30-Year Loan Rates Over the Last Year
The average rates for a 30-year fixed home loan going back one year are higher now than they've been all year. (4.17% February 9, 2017 vs. 4.32% February 8, 2018)
This is not surprising to industry watchers and analysts. Last year, economists from the Mortgage Bankers Association and Freddie Mac were predicting that rates would rise gradually throughout 2018. Some forecasts suggested that the average rate for a 30-year mortgage would reach 5% by the end of this year. And that's entirely plausible, given this recent uptick in lending rates.
So what's causing this recent rise in borrowing costs? Several things. Over the last year, the Federal Reserve has been gradually increasing the short-term federal funds rate. This can have an indirect affect on consumer borrowing costs. The Fed's policy changes, along with general economic improvements, are partly what's driving the rise in interest rates -- including those used for mortgage loans.
And some economists are predicting that we will see a continued yet gradual rise in rates throughout 2018.
All of this makes a good argument for buying a home sooner rather than later. Home buyers who postpone their purchases until later in the year could encounter higher mortgage rates. And when you consider the fact that home prices are still rising in most parts of the country, there's even more urgency.
Granted, you should never make a home purchase until you are 100% ready to do so, financially and emotionally. It has to be the right move for you, one that will improve your qualify of life in some way. With that being said, it might make sense to buy sooner rather than later to avoid possible rate hikes and home-price increases.
Note: Mortgage rates can vary from one borrower to the next due to a number of factors, including credit history and the type of loan being used. The numbers presented above are based on averages reported by Freddie Mac.