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.

Homeowners: Your Home Must Be Sold TWICE

Homeowners: Your Home Must Be Sold TWICE | MyKCM

In today’s housing market, where supply is very low and demand is very high, home values are increasing rapidly. Many experts are projecting that home values could appreciate by another 5%+ over the next twelve months. One major challenge in such a market is the bank appraisal.

If prices are surging, it is difficult for appraisers to find adequate, comparable sales (similar houses in the neighborhood that recently closed) to defend the selling price when performing the appraisal for the bank.

Every month in their Home Price Perception Index (HPPI), the disparity between what a homeowner who is seeking to refinance their home believes their house is worth, as compared to an appraiser’s evaluation of that same home.

“While a 1 or 2 percent difference in home value opinions may not seem like a lot, it could be enough to derail a mortgage.

A homeowner [or a buyer] could be forced to bring more cash to closing in order to make a mortgage work if the appraisal is lower than expected. On the other hand, if an appraisal comes in higher, they could be surprised with more equity than they had planned. Either way, if owners are aware of their local markets it will lead to smoother mortgage transactions.”

The chart below illustrates the changes in home price estimates over the last 12 months.

Homeowners: Your Home Must Be Sold TWICE | MyKCM

Bottom Line

Every house on the market has to be sold twice; once to a prospective buyer and then to the bank (through the bank’s appraisal). With escalating prices, the second sale might be even more difficult than the first. If you are planning on entering the housing market this year, let’s get together to discuss this and any other obstacle that may arise.

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.

Fake News! -the RENT vs. BUY Debate

The TRUTH Behind the RENT vs. BUY Debate | MyKCM

I have not heard this term lately – have you?  The Russian are not hacking the mortgage industry – at least, I believe not yet.  The media has always had differing opinions of topics like this and we felt it was important to share the why.

In a blog post published last Friday, CNBC’s Diana Olnick reported on the latest results of the FAU Buy vs. Rent Index. The index examines the entire US housing market and then isolates 23 major markets for comparison. The researchers at FAU use a “‘horse race’ comparison between an individual that is buying a home and an individual that rents a similar-quality home and reinvests all monies otherwise invested in homeownership.” – can you see the flaw in the logic already?

Having read both the index and the blog post, we would like to clear up any confusion that may exist. There are three major points that we would like to counter:

1. The Title

The CNBC blog post was titled, “Don’t put your money in a house, says a new report.” The title of the press release about the report on FAU’s website was “FAU Buy vs. Rent Index Shows Rising Prices and Mortgage Rates Moving Housing Markets in the Direction of Renting.”

Now, we all know headlines can attract readers and the stronger the headline the more readership you can attract, but after dissecting the report, this headline may have gone too far. The FAU report notes that rising home prices and the threat of increasing mortgage rates could make the decision of whether to rent or to buy a harder one in three metros, but does not say not to buy a home.

2. Mortgage Interest Rates are Rising

According to Freddie Mac, mortgage interest rates reached their lowest mark of 2017 last week at 3.89%. Interest rates have hovered around 4% for the majority of 2017, giving many buyers relief from rising home prices and helping with affordability.

While experts predict that rates will increase by the end of 2017, the latest projections have softened, with Freddie Mac predicting that rates will rise to 4.3% in Q4.

3. “Renting may be a better option than buying, according to the report.”

Of the 23 metros that the study reports on, 11 of them are firmly in buy territory, including New York, Boston, Chicago, Cleveland, and more. This means that in nearly half of all the major cities in the US, it makes more financial sense to buy a home than to continue renting one.

In 9 of the remaining metros, the decision as to whether to rent or buy is closer to a toss-up right now. This means that all things being equal, the cost to rent or buy is nearly the same. That leaves the decision up to the individual or family as to whether they want to renew their lease or buy a home of their own.

The 3 remaining metros Dallas, Denver and Houston, have experienced high levels of price appreciation and have been reported to be in rent territory for well over a year now, so that’s not news…

Beer & Cookies

One of the three authors of the study, Dr. Ken Johnson has long reported on homeownership and the decision between renting and buying a home. The methodology behind the report goes on to explain that even in a market where a renter would be able to spend less on housing, they would have to be disciplined enough to reinvest their remaining income in stocks/bonds/other investments for renting a home to be a more attractive alternative to buying.  After 25 years in the mortgage industry I can share that we do not have an epidemic of renters that save money.  Yes there are some but this is not the majority.

Johnson himself has said:

“However, in perhaps a more realistic setting where renters can spend on consumption (beer, cookies, education, healthcare, etc.), ownership is the clear winner in wealth accumulation. Said another way, homeownership is a self-imposed savings plan on the part of those that choose to own.” 

Bottom Line

In the end, you and your family are the only ones who can decide if homeownership is the right path to go down. Real estate is local and every market is different. Let’s get together to discuss what’s really going on in your area and how we can help you make the best, most informed decision for you and your family.

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!

Working with a Local Real Estate Professional Makes All the Difference

Why Working with a Local Real Estate Professional Makes All the Difference | MyKCM

If you’ve entered the real estate market, as a buyer or a seller, you’ve inevitably heard the real estate mantra, “location, location, location” in reference to how identical homes can increase or decrease in value due to where they’re located. Well, a new survey shows that when it comes to choosing a real estate agent, the millennial generation’s mantra is, “local, local, local.”

CentSai, a financial wellness online community, recently surveyed over 2,000 millennials (ages 18-34) and found that 75% of respondents would use a local real estate agent over an online agent, and 71% would choose a local lender.

Survey respondents cited many reasons for their choice to go local, “including personal touch & handholding, longstanding relationships, local knowledge, and amount of hassle.”

Doria Lavagnino, Cofounder & President of CentSai had this to say:

“We were surprised to learn that online providers are not yet as big a disruptor in this sector as we first thought, despite purported cost savings. We found that millennials place a high value on the personal touch and knowledge of a local agent. Buying a home for the first time is daunting, and working with a local agent—particularly an agent referred by a parent or friend—could provide peace of mind.”

The findings of the CentSai survey are consistent with the Consumer Housing Trends Study, which found that millennials prefer a more hands-on approach to their real estate experience:

“While older generations rely on real estate agents for information and expertise, Millennials expect real estate agents to become trusted advisers and strategic partners.”

When it comes to choosing an agent, millennials and other generations share their top priority: the sense that an agent is trustworthy and responsive to their needs.

That said, technology still plays a huge role in the real estate process. According to the National Association of Realtors, 95% of home buyers look for prospective homes and neighborhoods online, and 91% also said they would use an online site or mobile app to research homes they might consider purchasing.

Bottom Line

Many wondered if this tech-savvy generation would prefer to work with an online agent or lender, but more and more studies show that when it comes to real estate, millennials want someone they can trust, someone who knows the neighborhood they want to move into, leading them through the entire experience

Do You Know the Cost of NOT Owning Your Home?

Do You Know the Cost of NOT Owning Your Home? | MyKCM

Owning a home has great financial benefits, yet many continue renting! Today, let’s look at the financial reasons why owning a home of your own has been a part of the American Dream for as long as America has existed.

Zillow recently reported that:

“With Rents continuing to climb and interest rates staying low, many renters find themselves gazing over the homeownership fence and wondering if the grass really is greener. Leaving aside, for the moment, the difficulties of saving for a down payment, let’s focus on the monthly expenses of owning a home: it turns out that renters currently paying the median rent in many markets could afford to buy a higher-quality property than the typical (read: median-valued) home without increasing their monthly expenses.”

What proof exists that owning is financially better than renting?

1. The latest Rent Vs. Buy Report from Trulia pointed out the top 5 financial benefits of homeownership:

  • Mortgage payments can be fixed while rents go up.
  • Equity in your home can be a financial resource later.
  • You can build wealth without paying capital gain.
  • A mortgage can act as a forced savings account
  • Overall, homeowners can enjoy greater wealth growth than renters.

2. Studies have shown that a homeowner’s net worth is 45x greater than that of a renter.

3. Just a few months ago, we explained that a family buying an average priced home at the beginning of 2017 could build more than $42,000 in family wealth over the next five years.

4. Some argue that renting eliminates the cost of taxes and home repairs, but every potential renter must realize that all the expenses the landlord incurs are already baked into the rent paymentalong with a profit margin!!

Bottom Line

Owning a home has always been, and will always be, better from a financial standpoint than renting.