You’ve Been Asked: Should You?

 Everyone needs a little helping hand now and then. From the tiniest of favors to the biggest of asks, at some point each of us will be asked to help out a friend or family member. But as it relates to buying a home, a request for a little help falls into the “biggest” category.

The request can be to help out with some down payment money or funds for closing costs. There are multiple moving parts when buying a home and getting the financing lined up is one of the more detailed. Certainly not as fun as driving around and looking at homes for sale in person. Or maybe perusing online just a little when tinkering with the idea of buying a first home.

One of the more important tasks lenders take is to make sure the home they’re buying and the home loan they’re applying for is to determine affordability. Affordability is determined by comparing monthly credit obligations, including the new mortgage, taxes and insurance with the gross monthly income of all parties that will be on the loan. Sometimes though, especially for first timers, they might be a little short on the income side. This is where parents are often asked to help qualify by co-signing on the mortgage.

But should you?

When co-signing on a home loan, the prospective lender will review your income as well, along with the buyers’. The lender will review your gross monthly income and all of your debts as well, then add everyone’s income and debts together to arrive at a (hopefully) qualifying amount.  But some careful consideration needs to be done before moving too much further.

Will you have to step in if the buyers can’t make the monthly mortgage payment? This is the biggest risk because yes, you will be required to make the missing payment. After all, you co-signed on the note declaring that you would do so. This is why lenders add up everyone’s income and debts when reviewing affordability. If the buyers need some help with a payment, be prepared to write that check. If you’re not comfortable paying for your mortgage plus someone else’s, you might want to have the buyers rethink their purchase plan.

If the buyers need some help qualifying due to income, that could be a red flag. Maybe they’re buying when they’re not yet ready or are biting off more than they can financially chew and should perhaps find something a little less expensive. It’s a good thing to help out, but know exactly what you’re getting into.

Got Questions?  Email us at Info@EstatesByTheBeach.Com

WRITTEN BY DAVID REED

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5 Solid Reasons To Buy a House Now, Despite High Rates—and 2 Reasons To Wait

Warm weather usually brings out the barbecues, beach trips, and homebuyers in droves. But for this particular home shopping season, many buyers might feel like they’re on the fence.

Homebuyer ambivalence is high for good reason: On the one hand, buyers might be encouraged to hear that last year’s red-hot seller’s market, with its bidding wars and over-asking offers, has finally ebbed. On the other hand, mortgage rates are a full percentage point higher than last year, eating up potential savings. Combined with a bumpy economic forecast, it’s understandable that some homebuyers are hesitant to forge ahead.

“Currently, there are fewer buyers in the market because of rising interest rates and uncertainty in the market,” confirms Ralph DiBugnara, mortgage banker, real estate investor, and president of Home Qualified in New York City. Nonetheless, he points out that conditions have been improving for buyers, so right now is actually “a better time to buy than the [first half] of 2023.”

Realtor.com® chief economist Danielle Hale agrees with this assessment, saying that while it’s by no means a buyer’s market, the state of real estate has shifted to a more “buyer-friendly direction.”

Reasons to buy a house now

Ultimately, whether now is the right time for you to buy a home will boil down to a number of economic and personal factors. If you need help deciding, here are some reasons why it makes sense to buy a house now.

1. There are more homes for sale

Just a year earlier, the supply of housing was at such record lows that competition for the few houses out there was brutal. Since then, housing inventory has grown, with 50% more homes on the market today. Even better, the supply of homes for sale tends to hit its seasonal high point in May.

“Spring is typically the peak season for new listings, meaning there will be a larger selection of homes,” says Martin Boonzaayer, CEO of The Trusted Home Buyer in Phoenix. “This can increase the chances of finding a home that meets your needs and preferences.”

Keep in mind that while inventory is higher than last year, it’s still far below pre-COVID-19 levels, and many of these listings are stale, with fewer new sellers coming on the market.

The reason: According to a recent Realtor.com survey, 82% of potential home sellers feel “locked in” their current home due to a low mortgage rate.

Nonetheless, with plenty of homes for sale compared with a year earlier, buyers should have a relatively better shopping experience, particularly if they are willing to overlook a few flaws and drive a hard bargain.

2. Home prices may be heading south soon

Listing prices reached a record high of $449,000 last June, and while they’re still higher now than they were a year earlier, these numbers are poised to decline soon.

“The increase in inventory has been big enough to slow home price increases,” says Hale. Plus, buyers should take heart that listing prices are just a starting point, and sellers are willing to settle for less these days. In fact, the final sales price of homes has already declined annually in both March and April.

“Overall, home prices are trending lower,” agrees Rick Arvielo, co-founder and CEO of New American Funding, a privately owned mortgage company. “After the unprecedented increases in home pricing over the last two years, we are seeing the froth coming off some markets that saw home prices increase significantly. This is very market-specific, but for the most part, reasonable reductions are trending.”

Even lowballing, which would have been laughable a year earlier, could work with motivated sellers whose properties have been stuck on the market for a while, so make sure to check a home’s days on the market and negotiate accordingly.

3. Interest rates are poised to decline this year, too

Given the U.S. Federal Reserve isn’t expected to announce another significant interest rate hike anytime soon, many experts say that mortgage rates, like home prices, have likely reached their apex. So buyers should not worry too much that rates will rise higher.

“We’ve seen the highest mortgage rates we are likely to see for some time,” says Hale, who expects mortgage rates to stabilize in the short term, and then begin dropping by late summer and early fall. “I don’t think we’ll see a fast decline from here, but rather a gradual easing.”

“Mortgage interest rates are expected to hover at around 6% for 2023,” says Nick Ron, founder and CEO of House Buyers of America. That’s unless something dramatic happens with either inflation or the job market.

“When you consider that rates reached 16.63% in 1981, our current rates do not look bad,” adds Ron. “And if rates do fall several points, you can refinance.”

Eminlee Wang, a real estate agent with FlyHomes in Dallas, predicts that rates should stick somewhere between 6% and 7%, adding that many mortgage companies are making it easier to refinance in the future if and when rates drop.

“Many mortgage companies are meeting the moment with products that allow their customers to buy now and then refinance for free in the future,” she says.

Consumers should always do their research and make sure there are no hidden fees or timeline requirements to those refinancing deals, she advises.

4. Homes are taking longer to sell

In the past few years, homes in hot markets were selling so fast, buyers couldn’t even see the place before it was snapped up.

“During the pandemic, nearly one-third of new listings went into contract within hours or days,” recalls Wang.

But this whiplash pace has slowed considerably. In April 2022, homes spent 49 days on the market, which is 17 days longer than last year.

The reason for this slowdown: Everyone is waiting and hoping for either interest rates to drop or home prices to go down.

“This has meant that the limited number of homes which are on the market are sitting for longer,” says Wang.

This means buyers need no longer rush into a deal out of desperation, but can take their time to compare their options and negotiate a better deal.

“Buyers are more in the driver’s seat than they were just 12 to 18 months ago,” says Ron. “Demand is not what it was, so sellers are more likely to be flexible.”

5. It’s the right time for you and your family

Sometimes, the reasons you’re buying a house are out of your control. Perhaps you’re moving due to a job change or other extenuating circumstances. So while interest rates and high home prices are challenging affordability for many potential homebuyers, it’s important not to try too hard to time the market and let it dictate what you do, especially if moving makes sense for your life right now.

“The best time to buy or sell is specific to you and your needs,” says Ashley Farrell, a real estate agent with The Corcoran Group in Westhampton Beach, NY. “Evaluate your life and the trajectory of your next few chapters. For naysayers on high mortgage rates, those are temporary. Date the rate, and marry the house!”

“A good real estate agent and lender can help you figure out a strategy to lower your interest rate,” says Delaney Juarez, a real estate agent with Keller Williams City View in San Antonio, TX. “So don’t let that be a reason you put off a move that you really want or need to make.”

Reasons to hold off on buying a house

While there are some good reasons to jump into the housing market right now, there are also a few things to consider that might mean you’re better off waiting to buy a house.

1. You’re maxing out your budget

Inflation was still up 4.9% year over year in April, eating into homebuyers’ budgets. So if mortgage rates have you stretched thin financially, then it might be best to wait and allow mortgage rates to steady or even come down before buying a house.

“If interest rates have risen to a level that would strain your budget and make homeownership unaffordable, it might be wise to wait until rates become more favorable or until you can improve your financial situation,” says Chase Michels, real estate agent with The Michels Group Compass in Downers Grove, IL.

Since interest rates change so often, potential homebuyers can and should rate-test their budgets regularly by plugging their income and debts into an online home affordability calculator.

2. Your future is uncertain

The country is sitting in a relatively unpredictable economic situation at the moment, so if your own future is unclear and you don’t have to move, waiting might be the safer option—especially if you aren’t settled in your job or sure you plan to live in an area for more than a year or two.

“If you have the flexibility to wait and are not in immediate need of a home, you can take the time to save more money for a larger down payment, improve your credit score, or explore other neighborhoods or housing options that may become available in the future,” Michels says.

Got Questions?  Email us at Info@EstatesByTheBeach.Com

By Meera Pal

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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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Freddie Mac: Mortgages Hit Another All-Time Low

Purchase and Refinance demands are way up. 

https://bit.ly/3bXpCbg 

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