Home Buying Myths Slayed

Home Buying Myths Slayed [INFOGRAPHIC] | MyKCM

Some Highlights:

  • The average down payment for first-time homebuyers is only 6%!
  • Despite mortgage interest rates being over 4%, rates are still below historic numbers.
  • 88% of property managers raised their rents in the last 12 months!
  • The credit score requirements for mortgage approval continue to fall.
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Getting Pre-Approved Should Always Be Your First Step

Getting Pre-Approved Should Always Be Your First Step | MyKCM

In many markets across the country, the number of buyers searching for their dream homes greatly outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or better yet pre-approved for a mortgage before starting your search.

Even if you are in a market that is not as competitive, understanding your budget will give you the confidence of knowing if your dream home is within your reach.

Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”

Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:

  1. Capacity: Your current and future ability to make your payments
  2. Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
  3. Collateral: The home, or type of home, that you would like to purchase
  4. Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so.

The Cost of Renting vs. Buying

The Cost of Renting vs. Buying [INFOGRAPHIC] | MyKCM

Some Highlights:

  • Historically, the choice between renting or buying a home has been a tough decision.
  • Looking at the percentage of income needed to rent a median-priced home today (28.8%) vs. the percentage needed to buy a median-priced home (17.1%), the choice becomes obvious.
  • Every market is different. Before you renew your lease again, find out if you can put your housing costs to work by buying this year!

Thinking of Selling Your Home? Why You Need A Pro in Your Corner

Thinking of Selling Your Home? Why You Need A Pro in Your Corner | MyKCM

With home prices on the rise and buyer demand strong, some sellers may be tempted to try and sell their homes on their own (FSBO) without using the services of a real estate professional.

Real estate agents are trained and experienced in negotiation and, in most cases, the seller is not. Sellers must realize that their ability to negotiate will determine whether or not they get the best deal for themselves and their families.

Here is a list of some of the people with whom the seller must be prepared to negotiate if they decide to FSBO:

  • The buyer who wants the best deal possible
  • The buyer’s agent who solely represents the best interest of the buyer
  • The buyer’s attorney (in some parts of the country)
  • The home inspection companies, which work for the buyer and will almost always find some problems with the house
  • The termite company if there are challenges
  • The buyer’s lender if the structure of the mortgage requires the sellers’ participation/changes/status updates
  • The appraiser if there is a question of value
  • The title company if there are challenges with certificates of occupancy (CO) or other permits
  • The town or municipality if you need to get the CO permits mentioned above
  • The buyer’s buyer in case there are challenges with the house your buyer is selling
  • Your bank in the case of a short sale

Bottom Line

The percentage of sellers who have hired real estate agents to sell their homes has increased steadily over the last 20 years. Let’s get together and discuss all we can do to make the process easier for you.

The COST of Your Next Home Will Be LESS Than Your Parents’ Home Was

The COST of Your Next Home Will Be LESS Than Your Parents' Home Was | MyKCM

There is no doubt that the price of a home in most regions of the country is greater now than at any time in history. However, when we look at the cost of a home, it is cheaper to own today than it has been historically.

The Difference Between PRICE and COST

The price of a home is the dollar amount you and the seller agree to at the time of purchase. The cost of a home is the monthly expense you pay for your mortgage payment.

To accurately compare costs in different time periods, we must look at home prices, mortgage rates, and wages during each period. Home prices were less expensive years ago, but paychecks were also smaller and mortgage rates were much higher (the average mortgage interest rate in 1988 was 10.34%).

The best way to measure the COST of a home is to determine what percentage of income is necessary to buy a home at the time. That would take into account the price of the home, the mortgage interest rate and wages at the time.

Zillow just released research that examined home costs using this formula. The research compares the historic percentage of income necessary to afford a mortgage to the percentage needed today. It also revealed the cost if mortgage rates continue to rise as experts are predicting. Here is a graph of their findings*:

The COST of Your Next Home Will Be LESS Than Your Parents' Home Was | MyKCM

Rates would need to jump to 7% in order for the percentage of necessary income to be greater than historic norms.

Bottom Line

Whether you are a homeowner considering selling your current house and moving up to the home of your dreams, or a first-time buyer trying to purchase your first home, it’s a great time to move forward.

*Assumptions in the Zillow report: Buyer puts 20% down, takes out a conforming, 30-year fixed-rate mortgage at rates prevailing at the time, earns the median household income, and is buying a median-valued home.

“Short of a War or Stock Market Crash…”

“Short of a war or stock market crash…” | MyKCM

This month, Arch Mortgage Insurance released their spring Housing and Mortgage Market Review. The report explained that an increase in mortgage rates and/or home prices would impact monthly payments this way:

  • A 5% increase in home prices increases payments by roughly 5%
  • A 1% rise in interest rates increases payments by roughly 13% or 14%

That begs the question…

What if both rates and prices increase as predicted?

The report revealed:

“If interest rates and home prices rise by year-end in the ballpark of what most analysts are forecasting, monthly mortgage payments on a new home purchase could increase another 10–15%. That would make 2018 one of the worst full-year deteriorations in affordability for the past 25 years.”

The percent increase in mortgage payments would negatively impact affordability. But, how would affordability then compare to historic norms?

Per the report:

“For the U.S. overall, even if affordability were to deteriorate as forecasted, affordability would still be reasonable by historic norms. That is because the percentage of pre-tax income needed to buy a typical home in 2019 would still be similar to the historical average during 1987–2004. Thus, nationally at least, even with higher rates and home prices, affordability will just revert to historical norms.”

What about home prices?

A decrease in affordability will cause some concern about home values. Won’t an increase in mortgage payments negatively impact the housing market? The report addressed this question:

“Even recent interest rate increases and higher taxes on some upper-income earners didn’t slow the market, as many had feared…Short of a war or stock market crash, housing markets could continue to surprise on the upside over the next few years.”

To this point, Arch Mortgage Insurance also revealed their Risk Index which estimates the probability of home prices being lower in two years. The index is based on factors such as regional unemployment rates, affordability, net migration, housing starts and the percentage of delinquent mortgages.

Below is a map depicting their projections (the darker the blue, the lower the probability of a price decrease):

“Short of a war or stock market crash…” | MyKCM

Bottom Line

If interest rates and prices continue to rise as projected, the monthly mortgage payment on a home purchased a year from now will be dramatically more expensive than it would be today.

Two Ways Rising Mortgage Rates Could Impact You

According to the Freddie Mac weekly market survey, mortgage rates have increased by 0.5% in the past year (April 2017 – April 2018). This means your monthly payment today could be approx. $30/month higher than it was last year for every $100,000 you borrow.  Here are two ways this could impact you:

1 – If You’re Thinking of Buying a Home
It may be worthwhile for you to consider buying a home now instead of waiting.  That’s because most economists anticipate that interest rates will continue to go up throughout this year due to:

  • Risk of higher inflation, which leads to higher interest rates
  • A greater supply of bonds due to growing budget deficits
  • Less demand for bonds due to the Fed winding down their bond-buying program

It may benefit you to lock in today’s rates instead of waiting for interest rates and monthly payments to move higher.

2 – If You’re Thinking of Making Home Improvements
You may be able to fund your new project by using a “cash-out” mortgage refinance.  That’s where you trade in your current home loan for a larger home loan, and use the “cash-out” for your new home improvement project.  For the same reasons outlined above, it may be worthwhile for you to consider doing this now instead of waiting.
Contact me for more info or to explore your options!

PLEASE NOTE: This article is provided for illustrative purposes only. It is not an offer or commitment to lend you money, and it is not an advertisement for a specific mortgage or a specific interest rate. Payment examples don’t include property taxes and home insurance. Contact me to run the numbers for your situation.