by The KCM Crew on February 25, 2014 in For Buyers, Interest Rates
A recent study revealed that the number of existing home owners planning to buy a home this year is about to increase dramatically. Some are moving up, some are downsizing and others are making a lateral move. Another study shows that over 75% of these buyers will, in fact, be in that first category: a move-up buyer. We want to address this group of buyers in today’s blog post.
There is no way for us to predict the future but we can look at what happened over the last year. Let’s look at buyers that considered moving up last year but decided to wait instead.
Assume they had a home worth $300,000 and were looking at a home for $400,000 (putting 10% down they would get a mortgage of $360,000). By waiting, their house appreciated by 13.8% over the last year (national average based on the Case Shiller Pricing Index). Their home would now be worth $341,400. But, the $400,000 home would now be worth $455,200 (requiring a mortgage of $409,680).
Here is a table showing what additional monthly cost would be incurred by waiting:
Prices are projected to appreciate by over 4% and interest rates are also expected to rise by as much as another full percentage point. If your family plans to move-up to a nicer or bigger home this year, it may make sense to move now rather than later.
Some industry gurus are questioning whether the housing momentum we saw early in 2013 began to dissipate later in the year. The more dramatic have claimed the housing sector is still on shaky ground. Others have blamed the slowdown in sales on a lack of consumer confidence or rising interest rates.
The National Association of Realtors (NAR) just released their 2013 4th Quarter Housing Report. The report revealed that home sales numbers barely outperformed (an .08% increase) those in the 4th quarter of 2012.
We believe the leveling in home sales is directly attributable to a lack of salable listing inventory; specifically in the West.
Three of the four regions in the NAR report had an increase in sales: Northeast (+7.1%), Midwest (+2%) and South Regions (+3.6%). A big fall-off in sales occurred in the Western Region. The dramatic fall-off in the West (-8.1%) can be directly linked to a shortage of inventory in their hottest markets.
If the decrease in sales was caused by an eroding of consumer confidence and/or rising interest rates, we believe each region would have seen similar decreases.
Follow these steps to avoid your mortgage from being denied.
Cynics may scoff, but getting under contract on the right home can turn even the most stoic shopper into a bit of a dreamer. From paint colors to planting a garden, picturing yourself in that property is critical for many buyers.
But leave a little room for pragmatism. Remember that getting pre-approved for a mortgage and even under contract isn’t a guarantee. That prefix is there for a reason. Loan pre-approval is not loan approval.
You’ll have more hurdles to clear before a lender legally commits to funding your home loan. Buyers who don’t know any better can inadvertently add obstacles to that path – or even kill the entire deal – between contract and closing day.
Some missteps can be costlier than others. Here’s a look at five of the worst things you can do before buying a home.
1. Go Credit-Crazy
It’s almost become cliché in the mortgage industry, but the warning still bears repeating: Don’t buy a truckload of furniture until after your loan closes. The prohibition goes beyond sofas and settees – avoid obtaining credit for any major expense, like a car, a boat or, yes, a new bedroom set.
Be careful with even minor expenses. If you absolutely need to obtain new credit or accrue debt before closing, talk with your loan officer as soon as possible.
New payments are going to affect your monthly debt-to-income ratio (and residual income on a VA loan), and not in a good way. Hard inquiries on your credit report could also lower your credit score. That might hurt your interest rate if you haven’t locked or even knock you out of qualifying range all together.
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2. Shuffle Dollars & Cents
Lenders will scour your most recent bank statement as part of the pre-approval process. It’s not like they forget about it after that. They’ll take another look at your assets and bank records again during the underwriting process.
You’ll need to explain any unusual deposits or withdrawals. Lenders will require clear documentation and a paper trail if you’re putting gift funds toward a down payment or closing costs. Stuffing a wad of undocumented cash into your account is going to raise some red flags.
3. Get Behind on Bills
Having a late payment hit your credit report before closing can devastate your deal. Payment history comprises about a third of your credit score.
One solitary 30-day late payment can clip 60 to 110 points from your credit score. Maybe not a huge deal if you had an 800 score, right?
Possibly. But if that 30-day late blemish is a mortgage or rent payment, some lenders will boot your application altogether. Many will require at least 12 consecutive months of on-time payments in order to qualify for a home loan.
4. Co-Sign on a Loan
Co-signing a loan is arguably a bad financial move whenever you make it. But it’s especially risky during the mortgage lending process. It means you’re financially liable for someone else’s debt.
Yes, that someone else might be the most responsible person on the planet. Lenders will still need to factor that new monthly obligation into your overall affordability profile. Adding one more debt to the list could stretch too thin your debt-to-income ratio and assets.
[Are you ready to get a mortgage? Click to compare interest rates from lenders now.]
5. Changes in Employment
Probably goes without saying, but losing your job is going to be a big problem. Even job-hopping can present some major hurdles. Lenders crave stable, reliable income that’s likely to continue.
Lenders are likely to slam on the brakes if you take a new job in a different field. Or if you decide to start your own business. Or even if you get a promotion but see some or all of your income shift to a commission basis.
The bottom line: Any change to your employment is significant. Keep your loan officer in the loop, and ask questions when in doubt. The last thing you want is to waste time and money on a home loan you’re never going to get.
Throughout the mortgage process, it can also be helpful to monitor your credit scores for changes so you can know whether you need to address any problems. To do that, you can use a free tool like Credit.com’s Credit Report Card, which updates your credit scores and an overview of your credit report every month.
The Federal Emergency Management Agency (FEMA) recently completed a Flood Insurance Study (FIS) report, which will bring about changes to the Flood Insurance Rate Maps (FIRMs) for Virginia Beach. FIRMs establish Special Flood Hazard Areas (SFHAs), flood risk zones and flood elevations. This data is used to set flood insurance rates, identify where flood insurance is required as a condition of a federally insured mortgage, and for floodplain management and building regulations. The last time the FIRM for our area was updated was 2009. Since then, technology has improved dramatically and has enabled FEMA to more accurately define the boundaries of flood zones in our city. Overall, changes to the Virginia Beach FIRM will result in a slight decrease in the number of structures located in high-risk flood hazard areas (from 18,897 to 18,204 - or 693 fewer structures).The majority of changes from one flood zone designation to another, and the resulting change to owners’ insurance ratings, are concentrated in the following areas:• Chesapeake Beach/Shore Drive (structures in high-risk zones have decreased by 605)• Eastern Branch of Elizabeth River (structures in high-risk zones have increased by 903)There are no significant changes along the Oceanfront or in the Stumpy Lake watershed area. The Sandbridge Beach area will see a net reduction of 152 structures. Flood zones designated as A, AE and VE are considered high risk zones. These are areas with a one percent annual chance of flooding and a 26 percent chance of flooding over the life of a 30-year mortgage.FEMA has provided an interactive, online tool that enables you to see your current and new preliminary flood hazard zone. Help using the map is available at VBgov.com/maps.FEMA has established a 90-day comment/appeal period for Virginia Beach’s preliminary flood maps. This 90-day period began Feb. 5 and will run through May 5, 2014.An appeal is a formal objection to proposed base flood elevations or flood depths, Special Flood Hazard Areas (SFHA) boundaries and zones, or floodways. Appeals must be based on technical data that show proposed maps to be scientifically incorrect. Anyone who makes an appeal must include the method, data and analysis used to support the claim. A comment is an objection to a base map feature change such as labels, incorrect roads, jurisdictional boundaries or any other non-appealable change.Comments and appeals should be submitted to Rebecca Lear, the city’s local floodplain administrator, at email@example.com. All comments and appeals will be forwarded to FEMA. Once all comments and appeals are resolved, FEMA will provide the final effective date for the new flood maps.Property owners who are affected by the changes to the flood maps will receive a letter from Virginia Beach Public Works Engineering sometime in May, which will notify them how they are affected and what action, if any, they need to take. For additional information, visit VBgov.com/flood.
by The KCM Crew on January 20, 2014 in For Buyers
If you are thinking about purchasing a home right now, you are surely getting a lot of advice. Though your friends and family have your best interests at heart, they may not be fully aware of your needs and what is currently happening in real estate. Let’s look at whether or not now is actually a good time for you to buy a home.
There are three questions you should ask before purchasing in today’s market:
This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with finances. A study by the Joint Center for Housing Studies at Harvard University reveals that the four major reasons people buy a home have nothing to do with money:
What non-financial benefits will you and your family derive from owning a home? The answer to that question should be the biggest reason you decide to purchase or not.
When looking at future housing values, we like the Home Price Expectation Survey. Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts and investment & market strategists about where prices are headed over the next five years. They then average the projections of all 100+ experts into a single number.
Here is what the experts projected in the latest survey:
A buyer must be concerned about more than just prices. The ‘long term cost’ of a home can be dramatically impacted by an increase in mortgage rates.
The Mortgage Bankers Association (MBA), the National Association of Realtors, Fannie Mae and Freddie Mac have all projected that mortgage interest rates will increase by approximately one full percentage over the next twelve months.
Only you and your family can know for certain the right time to purchase a home. Answering these questions will help you make that decision.
by The KCM Crew on January 13, 2014 in For Sellers
The price of any item (including residential real estate) is determined by ‘supply and demand’. If many people are looking to buy an item and the supply of that item is limited, the price of that item increases.
According to the National Association of Realtors (NAR), the supply of homes for sale dramatically increases every spring. Putting your home on the market now instead of waiting for the increased competition of the spring might make a lot of sense.
Buyers in the market during the winter months are truly motivated purchasers. They want to buy now. With limited inventory available in most markets currently, a seller will be in a great position to negotiate.
by Matt Sidford on December 11, 2013 in For Sellers
Today we are pleased to introduce Matt Sidford as our guest blogger. Matt is the Founder of Sidford Realty and has been helping buyers and sellers in the Park City and Deer Valley markets since 1997.
In today’s competitive real estate market, sometimes the standard, run-of-the-mill open houses aren’t yielding much success, and some sellers are choosing an alternative and effective method, that has been dubbed, “extreme open houses.”
With catered refreshments, prizes and entertainment, these events are causing quite a stir in the real estate world. By that, we mean that sellers are throwing elaborate parties in the guise of an open house, with hope that someone will buy their home. Some sellers hire local musicians and throw a fully catered party, equipped with champagne and expensive hors d’oeuvres. During the holidays, people are in a festive mood, and throwing a party is always a good idea to draw their attention.
The biggest advantage of an extreme open house is that potential buyers can see your home in a different light, giving you a chance to display some of your home’s attractive features. For example, if you are cooking food at your party, your guests can focus on your kitchen. Or, if you’re throwing a barbeque, you can get a chance to show off your favorite patio, drawing attention to some of your home’s best selling points.
Instead of showing a cold, empty home, you can attract potential buyers with a warm and vibrant home full of nice furnishings. Throwing a party in a warm and inviting home is a good idea even when you invite people who don’t intend to buy your home, since many of them will tell their friends about it.
You don’t really need to throw an elaborate party to draw peoples’ attention, however, you can offer them some nice snacks and a glass of wine, giving them a chance to relax in the living room or the patio, and enjoy some of the comforts of your home. For starters, you can make a list of friends and acquaintances, and then send out some flyers with your contact information and a few facts about your home.
Although the holiday season isn’t really considered the best time to sell, the real estate market is much tighter, resulting in less competition for sellers. At the same time, motivated buyers are still in the market for homes, in hopes that they can make a purchase.
During the holidays, you can liven up your home with some lights and ornaments to attract buyers. Although you can make your home “shine” during the holidays, try not to overdo it. Homes often look their best during the holidays, but sellers should be careful not to overdo it on the decor. Too many ornaments could have a negative effect, and actually turn buyers away. Obviously, you don’t want to offend people, so be sure to go with tasteful decorations, as opposed to large and gaudy ones.
Also keep in mind that emotions play a big role in homebuyer purchases. A well organized home with a few tasteful decorations shows much better than a cluttered home with your kid’s toys lying around the living room. People will often purchase a home solely based on their gut feelings. If a buyer “falls in love” with your home, chances are they’re going to be more inclined to purchase it.
On a final note, it’s also a good idea to make it easy for people to stop by to see your home. In this case, flexibility is a key factor. People are busy during the holidays, and the chances of selling your home will be much greater if make it available for them to see.
Despite the fact that many people feel that the holidays aren’t a good time to buy or sell a home, this really isn’t the case. With a little knowledge and effort, you can sell your home in a timely manner, relax, and enjoy the Holidays!
If you are debating on whether you should make an offer on a new home before the New Year, now is the time to stop deliberating and submit your bid. Between 2013 tax benefits, and avoiding mortgage rate roulette and changing lending rules, closing before the end of the year can offer significant financial benefits. Top mortgage and real estate experts share five ways you will benefit if you buy a home by December 31, 2013.
1.) Avoid rising rates roulette: Mortgage interest rates, while still attractive, are up 1 to 2 percent over this time last year. It’s possible to lock in a 30-year fixed rate mortgage at about 4.5 percent, says Shari Cashman (Gencor Mortgage). According to the Mortgage Bankers Association’s forecast, mortgage rates will likely rise to about 5 percent in 2014. If you buy now and the rates drop, you can always refinance. If you wait and the rates rise, you are stuck, says Todd Huettner (Huettner Capital).
2.) New Year, new lending rule: Lending rules will change on January 1, 2014 and it could be harder to get a loan. 2014’s rules will allow you to borrow less, at your same level of income, says Huettner. 2013’s current mortgage rules allow for a 45% total debt to income ratio (DTI); in 2014, the DTI will go down to 43%. What does this mean? You need to make or reduce your debt in order to buy the same house!*
3.) Easier financing: If you are waiting for home prices to decrease, don’t. 2014’s mortgage changes could make it harder to get financing, says Robert J. Spinosa (RPM Mortgage). So if you are looking to save a few dollars by waiting for home prices to drop, you could miss your window to secure a mortgage entirely.
4.) Lower sales could mean higher inventory: It’s an after Christmas sale before Christmas! While 2013’s housing theme was limited inventory and higher prices, historically, the fourth quarter of the year usually slows down the housing market and this year is no exception, says Greg Cook (First Time Buyers Network). Housing sales have been declining since September so inventory has increased. According to the National Association of Realtors®, existing-home sales declined for the second consecutive month in October, while constrained inventory means home prices continue to see double-digit year-over-year gains. You may get the deal of December!
5.) Maximize tax deductions: It’s important to remember that if you buy before the end of the year, you can begin deducting interest and building equity immediately, says Cashman. Some closing costs and points are tax deductible in the year you buy a home. Buying now allows you to include them on your 2013 tax return. If you buy even one week later in January, you have to wait a year for your 2014 return to take the deduction, says Huettner.
*If you decide to buy in 2014 and need to lower your DTI, Huettner recommends the below tips:
The best and safest way to lower your DTI is to simply make sure the lender is calculating your income and debt correctly. Work with an experienced lender, and work together to answer the below questions:
by The KCM Crew on December 3, 2013 in For Sellers
If you read some of the headlines about home sales over the last few weeks, you may believe that sales of houses in the U.S. are beginning to slow dramatically. There have been some that have used the recent Existing Home Sales Reports (EHSR) from the National Association of Realtors’ as proof of this supposition. We should be careful not to put too much credence in these reports of impeding doom.
It is true that the last EHSR revealed that sales were down 3.2% from the previous month. However, there are two crucial points that are not being addressed:
Sales of non-distressed properties are increasing nicely. However, as the inventory of distressed properties continues to shrink, the number of overall properties sold may diminish over the next few months. This is a sign that we are entering a much healthier housing market.
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