What If You’re Priced Out of Buying a Home?

First-time homebuyers are facing a serious problem when it comes to buying a house. While the acceleration may be cooling somewhat, there are still record-breaking rises in home prices. Recent data shows for the first time in the U.S., median home prices surpassed $400,000.

Several factors are likely to continue this trend. There are a lot of motivated buyers, limited housing supply and low mortgage rates. Inflation is pushing prices up for essentially everything, including homes. Low mortgage rates allow buyers to buy more than they would be able to ordinarily, so they can get involved in heated bidding wars.

Sellers are also staying put because they don’t want to jump into a highly competitive buying market, limiting the supply of available homes even more.

Homebuilders can’t get the materials they need, and even if they can, there’s a labor shortage.

Where does this leave first-time buyers or any buyer?

What Does It Mean to Be Priced Out?

If you’re priced out in the real estate market, it means that you can’t afford even an entry-level home. There are often a number of factors that can lead first-time buyers to be priced out, many of which are converging with one another right now.

If you’re trying to buy a house right now, you probably notice the down payment you worked hard to save isn’t going as far as you planned. If you saved 20% of the expected price you prepared to pay for a house, that might no longer be sufficient.

So, what can you do?

You might think automatically you should keep renting, but rent prices are going up because of inflation as well, while wages aren’t keeping up, so this isn’t the ideal option.

There are a few things you can do, and none of them might feel ideal, but your options are limited when you’re priced out.

Save More

If you live in a market that’s not affordable for you right now, you may need to keep renting and adding to your savings. This does also allow you to wait out the market somewhat. You may need to be patient because it could be a couple of years before you’re able to re-enter the marketing successfully.

As you’re thinking about what you can afford, it’s better to base it on your monthly expenses rather than the sales price.

If you are setting more money aside and you’re going to try and wait out the market a bit, don’t just put it in a standard savings account. You may need to put at least some of your savings into riskier but more high-earning options like stocks.

Change Your Expectations

Another option you have available when you’re otherwise priced out of the market is to change your expectations. With limited inventory and all the other factors going on in the market right now, you may have to give up a few things on your wish list, or maybe more than a few.

You could end up buying a fixer-upper that’s more in line with your budget.

For first-time buyers, being humble is key to getting a home in the current environment.

Broaden Your Home Search Geographically

Just like you might need to give up on some of your wish list as far as home features, you might also want to broaden the area where you’re looking geographically. There can be considerable differences in the price of homes from one neighborhood to the next or one suburb to the other.

Many people aren’t just moving out of urban areas to be able to afford a home—they’re changing cities altogether. For example, residents of expensive locations like New York and San Francisco are moving to more affordable cities like Austin and Atlanta.

Hire a Great Real Estate Agent

Finally, if you don’t already have a great real estate agent on your side, it would be nearly impossible to navigate the current market as a first-time buyer without getting one. Even if you can find a home you’re able to afford, you may be facing stiff competition.

Real estate professionals know about properties before they go on the market, so you’ll have an edge there. They’ll also be able to help you understand your local market so you can adjust your expectations as needed.

A real estate pro can negotiate on your behalf and cut some of the stress out of the experience for you.

It’s not an easy time to buy a home, but that doesn’t mean it’s impossible. You might wait it out, or you could shift your approach and strategy a bit.

GOT QUESTIONS, EMAIL US AT INFO@ESTATESBYTHEBEACH.COM

WRITTEN BY ASHLEY SUTPHIN

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Underwriting Explained

Underwriting is the process by which mortgage loans are evaluated to make sure the submitted loan matches what the selected loan program requires. I recall years ago when I first got into the mortgage biz a loan wouldn’t ever touch an underwriter’s desk until it was completely documented. And I mean completely. The loan file itself could be as much as two, three or even four inches thick, stuffed with various forms of documentation.

This documentation included pretty much anything the underwriter might ask for. Even if the underwriter ended up not asking for it, it was still included. From bank statements to title work to full blown appraisals, everything was there. And if something was discovered that wasn’t in the loan file that should have been, the loan file went straight back to the loan officer’s desk where the missing information was ultimately included and only then returned to the underwriter for a review.

After submitting the file to the underwriter, there would undoubtedly be more questions that the underwriter had during the course of reviewing the loan application for an approval. Or not, for an approval. If the loan couldn’t be approved, the loan officer would be notified as to why the loan was turned away and then it was the loan officer’s responsibility to track down what was needed and then resubmit the loan file. All this meant that the approval process could take up to 30 days or even more.

Today however, loans can be approved in as little as ten days and with much less documentation. Instead of the loan application being reviewed after all the documentation was provided and submitted, it’s now in reverse. The lender won’t ask for much documentation until after the results of the automated underwriting decision were received. This automated decision is essentially an electronic approval. The initial loan data is entered and within just a few moments and approval is provided. Or not an approval.

It’s at this stage where the required remaining documentation is submitted. With higher credit scores and more downpayment, fewer questions will be asked. A low down payment loan with suppressed credit scores will ask for more documentation. Full blown appraisals may not even be required and a simple review from the underwriter’s desk would suffice. Two paycheck stubs covering 30 days, last two years of W2 forms and last two years of tax returns? This too can be reduced using the automated underwriting system.

Today, almost every loan approval issued is approved using this method.

GOT QUESTIONS, EMAIL US AT INFO@ESTATESBYTHEBEACH.COM

WRITTEN BY DAVID REED

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5 Things to Know Before Filling Out a Loan Application

 

Getting your hands on and filling out a home loan application is the first thing you’ll likely do when deciding it’s time to buy and finance a home. You can complete an application in the presence of your loan officer (preferred) or you can DIY at a lender’s website. But whenever and however you apply for a mortgage, there are a few things you need to know beforehand. Here are five of them.

First, there’s a difference between filling out a loan application for a loan approval compared to completing some basic information to receive a prequalification letter. In order to get a full preapproval, be prepared to complete all fields on the app. If you’re not sure how to answer a particular question, leave it blank and your loan officer will follow up with any needed additional information. A prequal is very basic and you’ll be answering primarily just a few basic questions. A loan application for an approval is far more detailed.

You’ll be asked to complete information regarding your income and assets, so be ready to fill the application in with approximate account balances along with account numbers and institution’s name. A prequal just takes your word for how much you make, a loan application needs more detail. You don’t need to enter the current balance to the penny, but an approximation will do.

If you’ve been known by any other name or if you’ve applied for credit using a different name, be ready to explain the discrepancy and provide some proof. Perhaps there’s a maiden name in your credit file, your lender will want to know the background.

When entering your income, have handy your most recent paycheck stubs. That piece of paper will have your gross monthly earnings and year-to-date income.  Gross monthly earnings are used to calculate debt-to-income ratios. If you’re self-employed or are using income more than 25% of your monthly pay, tax returns will typically be asked for. Gather these returns because your lender will use those to verify and calculate qualifying income.

Finally, understand up front that even when you provide the required documentation for your lender to review and validate, the lender might very well ask for more info. Usually it’s nothing more than updating items in the loan file, but whenever you’re asked to provide some information, don’t wait around. Be timely.

GOT QUESTIONS, EMAIL US AT INFO@ESTATESBYTHEBEACH.COM

Original LINK WRITTEN BY DAVID REED

What Are the Best Ways to Use Your Home’s Equity?

 Your home equity can be a valuable resource to you, depending on your financial situation. Your equity is the interest you have in your home, as the owner. Your equity increases over time in two ways. Equity increases if your property value goes up or if you work toward paying down the balance of your mortgage loan.

Equity is the part of your home that you truly own if you borrowed money to buy it. If you did get a mortgage, the lender has an interest in your property until you pay it off, despite you being considered the homeowner.

The equity you have in your home is considered one of the most valuable assets you have.

Since it is an asset, you can use it. There are three main ways people use the asset of their equity. One is to sell your home. If you decide to move, you receive your equity from the proceeds of the sale. You can also borrow against the equity, and you can use a reverse mortgage to fund your retirement.

Buying a New Home

If you sell your home, you can put the equity aside, or you can use it to buy a new home.

If you have, let’s say $70,000 in equity in your home, then you’ll have a profit after closing. That profit can then be used for your down payment on your next home.

The bigger the down payment, the more expensive the home you may be able to afford. Your mortgage payments may be lower with a bigger down payment as well.

Borrowing Against Your Equity

Another way to use equity is to borrow against it. There are three primary ways to do this—a home equity loan, a home equity line of credit, or a cash-out refinance.

When you use your home’s equity as a way to borrow money, you’ll get a lower interest rate than you likely would with something like a credit card or personal loan.

There’s a downside too. If you don’t make your payments, a lender could foreclose on your home. This wouldn’t be the case if you were to use credit cards, for example.

A home equity loan is somewhat like a second mortgage. You can use the proceeds of a home equity loan however you want, and you pay it back in monthly installments with interest added. It works very much like a traditional mortgage.

A home equity line of credit is structured more like a credit card in that a lender gives you a credit limit based on your equity. You borrow as you need with a HELOC and also pay it back as you borrow.

A cash-out refinance lets you refinance for more than what’s owed on your mortgage, and you get the extra money as cash that you can use.

How to Build Equity

Since equity is a valuable asset that gives you financial flexibility and options, building it is an important goal.

One of the fastest ways someone builds equity is by coming up with as large a down payment as possible. The bigger your down payment, the more equity you’ll have right away.

If you already have a mortgage, make every effort to pay it off. When you first start paying a mortgage, smaller amounts go toward your principal, and more goes toward your interest. However, the longer you’ve had your mortgage, the more goes toward your principal, helping you build equity.

If you ever have opportunities to pay more than the minimum on your mortgage payment, do it. Some people make an extra payment each year, or they make biweekly payments. Even paying just a little more each month can help you reduce your principal balance and increase your equity faster.

If you stay in your home longer, you build more equity, particularly if it increases in value.

Finally, certain renovations that add value can also help you build equity. For example, adding a bathroom or doing a kitchen remodel can improve your home’s value, increasing your equity.

WRITTEN BY ASHLEY SUTPHIN
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