Home Buying Myths

Home Buying Myths Slayed [INFOGRAPHIC] | MyKCM

Some Highlights:

  • Interest rates are still below historic numbers.
  • 88% of property managers raised their rent in the last 12 months!
  • The credit score requirements for mortgage approval continue to fall.

The High Impact of Low Interest Rates on Your Purchasing Power

The High Impact of Low Interest Rates on Your Purchasing Power | MyKCM

According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 3.96%, which is still near record lows in comparison to recent history!

The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power.

Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain monthly housing budget.

The chart below shows what impact rising interest rates would have if you planned to purchase a home within the national median price range, and planned to keep your principal and interest payments between $1,850-$1,900 a month.

The High Impact of Low Interest Rates on Your Purchasing Power | MyKCM

With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000). Experts predict that mortgage rates will be closer to 5% by this time next year.

Act now to get the most house for your hard-earned money.

The Cost of Renting vs. Buying in the US

The Cost of Renting vs. Buying in the US [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 (29.2%) vs. the percentage needed to buy a median-priced home (15.8%), 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!

2 Myths Holding Back Home Buyers

2 Myths Holding Back Home Buyers | MyKCM

In Realtor.com’s recent article, “Home Buyers’ Top Mortgage Fears: Which One Scares You?” they mention that “46% of potential home buyers fear they won’t qualify for a mortgage to the point that they don’t even try.”

Myth #1: “I Need a 20% Down Payment”

Buyers overestimate the down payment funds needed to qualify for a home loan. According to the First Quarter 2017 Homeownership Program Index (HPI) from Down Payment Resource, saving for a down payment was the barrier that kept 70% of renters from buying.

Rob Chrane, CEO of Down Payment Resource had this to say,

There are many mortgage-ready renters today, but they don’t know it. Often, homebuyers remain sidelined for years due to the down payment.

Many believe that they need at least 20% down to buy their dream home, but programs are available that allow buyers put down as little as 3%. Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.

Myth #2: “I Need a 780 FICO® Score or Higher to Buy”

The survey revealed that 59% of Americans either don’t know (54%) or are misinformed (5%) about what FICO® score is necessary to qualify.

Many Americans believe a ‘good’ credit score is 780 or higher.

To help debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans.

2 Myths Holding Back Home Buyers | MyKCM

As you can see in the chart above, 53.2% of approved mortgages had a credit score of 600-749.

Bottom Line

Whether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Your dream home may already be within your reach.

The Supply & Demand Problem Plaguing New Construction

The Supply & Demand Problem Plaguing New Construction | MyKCM

Many real estate economists have called on new home builders to ramp up production to help relieve the shortage of inventory of homes for sale throughout the United States. The added inventory would no doubt aid buyers in their search to secure their dream home, while also helping to ease price increases throughout the country.

Unfortunately for builders, there are many forces that are making it difficult for them to do just that!

Last week at the National Association of Real Estate Editors 51st Annual Conference, CoreLogic’s Chief Economist Frank Nothaft broke down the 4 ‘L’s of New Home Construction: Lots, Labor, Lumber, and Lending.

The concept of supply and demand is ripe in the new home construction industry. The four ‘L’s of new home construction are each suffering a supply problem, and with that comes added costs. Let’s break it down!

Lots – There is a shortage of land near metros at an affordable price, causing builders to move farther and farther away from cities to keep costs down. This isn’t always an attractive option for those who want to stay close to work.

Labor – The Great Recession forced many skilled construction and trade workers to find other sources of income once their jobs were lost at the time of the crash. Even though the overall housing market has recovered, these workers have not returned. Those who remain are starting to age out and retire, causing even more of a shortage and additional costs.

Lumber – The cost to build a new home is directly tied to the cost of the lot and the cost of the supplies needed to build the home. Lumber costs continue to escalate due to policies restricting the importation of Canadian lumber, making larger luxury homes an attractive option to recoup costs when selling, rather than building smaller single-family homes and making less profit.

Below is a graph showing the increase in cost of 1,000 board feet of framing lumber.

The Supply & Demand Problem Plaguing New Construction | MyKCM

Year-over-year, lumber costs are up 13% after reaching a high of $433 in the second week of April.

Lending – During the Great Recession, many small community banks were forced to close their doors. These banks were a great source of capital and lending for builders looking to borrow money at a low interest rate in the community in which they were building. Tougher lending standards have made borrowing funds more expensive and more difficult for builders.

Bottom Line

Additional costs across all 4 ‘L’s have made building luxury properties more attractive to builders as they are able to make a larger margin with the higher sales price. The move to scale down to starter and trade up homes to help with supply will mean any additional costs are absorbed by the builders unless the supply of the 4 ‘L’s can increase!

IS A DEBT CONSOLIDATION LOAN WORTH IT?

There are two debt consolidation scenarios that are gaining popularity in today’s economy:

1 – If you already own a home: a debt consolidation loan is typically where you trade in your lower-balance home loan for a higher-balance home loan.  You could then use the “cash-out” proceeds to pay off other debt.

2 – If you are buying a new home: a debt consolidation loan is typically where you reduce your down payment and use a bigger mortgage on the purchase of your new home.  The extra money you have left over could then be used to pay off other debt.Here are three questions you can ask yourself to determine if a debt consolidation loan makes financial sense for you:

  1. What’s my after-tax interest cost on each debt? For example, home loan debt may be tax-deductible while credit card debt is not.  Please reference IRS publication 936 and see a CPA or tax advisor for more details.
  2. What’s my “blended interest rate” before and after the debt consolidation loan? This is basically the weighted average interest rate you’re paying on all your debts combined.
  3. What will I do with the extra monthly cash flow? For example, if you roll in your car loan balance into the mortgage balance, you’d be spreading out your car payments over 30 years whereas your car loan would otherwise have been paid off in 3 or 4 years.  This might only make financial sense if you invest your extra cash flow or if you make extra principal payments on your mortgage.

Please contact me for more information or to run the numbers for your specific scenario!

The Impact Your Interest Rate Makes

The Impact Your Interest Rate Makes [INFOGRAPHIC] | MyKCM

Some Highlights:

  • Interest rates have come a long way in the last 30 years.
  • The interest rate you secure directly impacts your monthly payment and the amount of house that you can afford if you plan to stay within a certain budget.
  • Interest rates are at their lowest in years… RIGHT NOW!
  • If buying your first home, or moving up to the home of your dreams is in your future, now may be the time to act!