Is the idea of saving for a down payment holding you back from buying a home right now? You may be eager to take advantage of today’s low mortgage rates, but the thought of needing a large down payment might make you want to pump the brakes. Today, there’s still a common myth that you have to come up with 20% of the total sale price for your down payment. This means people who could buy a home may be putting their plans on hold because they don’t have that much saved yet. The reality is, whether you’re looking for your first home or you’ve purchased one before, you most likely don’t need to put 20% down. Here’s why.
According to Freddie Mac:
“The most damaging down payment myth—since it stops the homebuying process before it can start—is the belief that 20% is necessary.”
If saving that much money sounds daunting, potential homebuyers might give up on the dream of homeownership before they even begin – but they don’t have to.
Data in the 2020 Profile of Home Buyers and Sellers from the National Association of Realtors (NAR) indicates that the median down payment actually hasn’t been over 20% since 2005, and even then, that was for repeat buyers, not first-time homebuyers. As the image below shows, today’s median down payment is clearly less than 20%.
What does this mean for potential homebuyers?
As we can see, the median down payment was lowest for first-time buyers with the 2020 percentage coming in at 7%. If you’re a first-time buyer and putting down 7% still seems high, understand that there are programs that allow qualified buyers to purchase a home with a down payment as low as 3.5%. There are even options like VA loans and USDA loans with no down payment requirements for qualified applicants.
It’s important for potential homebuyers (whether they’re repeat or first-time buyers) to know they likely don’t need to put down 20% of the purchase price, but they do need to do their homework to understand the options available. Be sure to work with trusted professionals from the start to learn what you may qualify for in the homebuying process.
Don’t let down payment myths keep you from hitting your homeownership goals. If you’re hoping to buy a home this year, let’s connect to review your options.
Every year, households across the country make the decision to rent for another year or take the leap into homeownership. They look at their earnings and savings and then decide what makes the most financial sense. That equation will most likely take into consideration monthly housing costs, tax advantages, and other incremental expenses. Using these measurements, recent studies show that it’s still more affordable to own than rent in most of the country.
There is, however, another financial advantage to owning a home that’s often forgotten in the analysis – the wealth built through equity when you own a home.
Odeta Kushi, Deputy Chief Economist for First American, discusses this point in a recent blog post. She explains:
“Once you include the equity benefit of price appreciation, owning made more financial sense than renting in 48 out of the 50 top markets, with the only exceptions being San Francisco and San Jose, Calif.”
What has this equity piece meant to homeowners in the past?
ATTOM Data Solutions, the curator of one of the nation’s premier property databases, just analyzed the typical home-price gain owners nationwide enjoyed when they sold their homes. Here’s a breakdown of their findings:The typical gain in the sale of the home (equity) has increased significantly over the last five years.
CoreLogic, another property data curator, also weighed in on the subject. According to their latest Homeowner Equity Insights Report, the average homeowner gained $17,000 in equity in just the last year alone.
What does the future look like for homeowners when it comes to equity?
Here are the seven major home price appreciation forecasts for 2021:The National Association of Realtors (NAR) just reported that today, the median-priced home in the country sells for $309,800. If homes appreciate by 5% this year (the average of the forecasts), the homeowner will increase their wealth by $15,490 in 2021 through increased equity.
As you make your plans for the coming year, be sure to consider the equity benefits of home price appreciation as you weigh the financial advantages of buying over renting. When you do, you may find this is the perfect time to jump into homeownership.
As we approach the anniversary of the hardships we’ve faced through this pandemic and the subsequent recession, it’s normal to reflect on everything that’s changed and wonder what’s ahead for 2021. While there are signs of economic recovery as vaccines are being issued, we still have a long way to go. It’s at times like these we want exact information about anything we’re doing. That information brings knowledge, and this gives us a sense of relief and comfort in uncertain times.
If you’re thinking about buying or selling a home today, the same need for information is very real. But, because it’s such a big step in our lives, that desire for clear information is even greater in the homebuying or selling process. Given the current level of overall anxiety, we want that advice to be truly perfect. The challenge is, no one can give you “perfect” advice. Experts can, however, give you the best advice possible.
Let’s say you need an attorney, so you seek out an expert in the type of law required for your case. When you go to her office, she won’t immediately tell you how the case is going to end or how the judge or jury will rule. If she could, that would be perfect advice. What a good attorney can do, however, is discuss with you the most effective strategies you can take. She may recommend one or two approaches she believes will be best for your case.
She’ll then leave you to make the decision on which option you want to pursue. Once you decide, she can help you put a plan together based on the facts at hand. She’ll help you achieve the best possible resolution and make whatever modifications in the strategy are necessary to guarantee that outcome. That’s an example of the best advice possible.
The role of a real estate professional is just like the role of a lawyer. An agent can’t give you perfect advice because it’s impossible to know exactly what’s going to happen throughout the transaction – especially in this market.
An agent can, however, give you the best advice possible based on the information and situation at hand, guiding you through the process to help you make the necessary adjustments and best decisions along the way. An agent will lead you to the best offer available. That’s exactly what you want and deserve.
If you’re thinking of buying or selling this year, let’s connect to make sure you get the best advice possible.
The real estate market is expected to do very well in 2021, with mortgage rates that are hovering at historic lows and forecasted by experts to remain favorable throughout the year. One challenge to the housing industry, however, is the lack of homes available for sale today. Last week, the National Association of Realtors (NAR) released their Existing Home Sales Report, which shows that the inventory of homes for sale is currently at an all-time low. The report explains:
“Total housing inventory at the end of December totaled 1.07 million units, down 16.4% from November and down 23% from one year ago (1.39 million). Unsold inventory sits at an all-time low 1.9-month supply at the current sales pace, down from 2.3 months in November and down from the 3.0-month figure recorded in December 2019. NAR first began tracking the single-family home supply in 1982.”
(See graph below):
What Does This Mean for You?
If You’re a Buyer:
Be patient during your home search. It may take time to find a home you love. Once you do, however, be ready to move forward quickly. Get pre-approved for a mortgage, be prepared to make a competitive offer from the start, and know that a shortage in inventory could mean you’ll enter a bidding war. Calculate just how far you’re willing to go to secure a home and lean on your real estate professional as an expert guide along the way. The good news is, more inventory is likely headed to the market soon, Lawrence Yun, Chief Economist at NAR, notes:
“To their credit, homebuilders and construction companies have increased efforts to build, with housing starts hitting an annual rate of near 1.7 million in December, with more focus on single-family homes…However, it will take vigorous new home construction in 2021 and in 2022 to adequately furnish the market to properly meet the demand.”
If You’re a Seller:
Realize that, in some ways, you’re in the driver’s seat. When there’s a shortage of an item at the same time there’s a strong demand for it, the seller is in a good position to negotiate the best possible terms. Whether it’s the price, moving date, possible repairs, or anything else, you’ll be able to request more from a potential purchaser at a time like this – especially if you have multiple interested buyers. Don’t be unreasonable, but understand you probably have the upper hand.
The housing market will remain strong throughout 2021. Know what that means for you, whether you’re buying, selling, or doing both.
If you’re planning to buy a home, an appraisal is an important step in the process. It’s a professional evaluation of the market value of the home you’d like to buy. In most cases, an appraisal is ordered by the lender to confirm or verify the value of the home prior to lending a buyer money for the purchase. It’s also a different step in the process from a home inspection, which assesses the condition of the home before you finalize the transaction. Here’s the breakdown of each one and why they’re both important when buying a home.
The National Association of Realtors (NAR) explains:
“A home purchase is typically the largest investment someone will make. Protect yourself by getting your investment appraised! An appraiser will observe the property, analyze the data, and report their findings to their client. For the typical home purchase transaction, the lender usually orders the appraisal to assist in the lender’s decision to provide funds for a mortgage.”
When you apply for a mortgage, an unbiased appraisal (which is required by the lender) is the best way to confirm the value of the home based on the sale price. Regardless of what you’re willing to pay for a house, if you’ll be using a mortgage to fund your purchase, the appraisal will help make sure the bank doesn’t loan you more than what the home is worth.
This is especially critical in today’s sellers’ market where low inventory is driving an increase in bidding wars, which can push home prices upward. When sellers are in a strong position like this, they tend to believe they can set whatever price they want for their house under the assumption that competing buyers will be willing to pay more.
However, the lender will only allow the buyer to borrow based on the value of the home. This is what helps keep home prices in check. If there’s ever any confusion or discrepancy between the appraisal and the sale price, your trusted real estate professional will help you navigate any additional negotiations in the buying process.
Here’s the key difference between an appraisal and an inspection. MSN explains:
“In simplest terms, a home appraisal determines the value of a home, while a home inspection determines the condition of a home.”
The home inspection is a way to determine the current state, safety, and condition of the home before you finalize the sale. If anything is questionable in the inspection process – like the age of the roof, the state of the HVAC system, or just about anything else – you as a buyer have the option to discuss and negotiate any potential issues or repairs with the seller before the transaction is final. Your real estate agent is a key expert to help you through this part of the process.
The appraisal and the inspection are critical steps when buying a home, and you don’t need to manage them by yourself. Let’s connect today so you have the expert guidance you need to navigate through the entire homebuying process.
As we look back over the past year, we’ve certainly lived through one of the most stressful periods in recent history. After spending so much more time at home throughout the health crisis, some are wondering if they should move to improve their mental health and well-being. This is no surprise since the U.S. Census Bureau reported an increase in the percentage of adults with symptoms of anxiety and depression in a recent Household Pulse Survey.
There’s logic behind the idea that making a move could improve someone’s quality of life. When people change their scenery, they often feel happier. Catherine Hartley, an Assistant Professor at New York University’s Department of Psychology and co-author of a study on how new experiences impact happiness, mentioned:
“Our results suggest that people feel happier when they have more variety in their daily routines—when they go to novel places and have a wider array of experiences.”
If you’re looking for a new experience, planning a move into a new home may be something you’ve started to consider more carefully. If so, you’re not alone. The 2020 Annual National Movers Study by United Van Lines shows:
“For customers who cited COVID-19 as an influence on their move in 2020, the top reasons associated with COVID-19 were concerns for personal and family health and wellbeing (60%); desires to be closer to family (59%); 57% moved due to changes in employment status or work arrangement (including the ability to work remotely); and 53% desired a lifestyle change or improvement of quality of life.”
So, if you’re thinking of moving this year to help boost your happiness factor, here are a few questions to ask yourself as you make your decision.
How’s the Weather?
Is the weather something that’s important to you? Does it have a tendency to impact your mood? The World Population Review shares:
“What states have the best weather? When evaluating each state for temperature, rain, and sun, some states stand out. Although climate and weather preferences are personal and subjective, some criteria are considered to make up the best weather, according to Current Results:
- Comfortable temperatures from 63°F to 86°F for more than half of the year.
- Dry weather with no more than 60 inches of rain per year.
- Mostly clear skies with an average of sunshine for at least 60% of the year.”
“Better weather” can mean different things to different people – some prefer the heat, others cooler temperatures, and some want to experience all four seasons. Think about what makes you feel happiest if you’re looking for a new location.
Should I Choose the City, Suburbs, or Country?
With the COVID-19 pandemic, some people are deciding to move to lower-density areas. Robert Dietz, Chief Economist at the National Association of Home Builders (NAHB), mentions:
“The third quarter Home Building Geography Index (HBGI) reveals that a suburban shift for consumer home buying preferences in the wake of the COVID-19 pandemic is accelerating as telecommuting is providing consumers more flexibility to live further out within large metros or even to relocate to more affordable, smaller metro areas.”
Can you work from home? Are you open to a longer commute in the future? If so, a move to the suburbs or even a quieter rural area may be a win for you. Or, if you’ve always dreamed of life in the city, now may be your chance to move into town.
As we look beyond the trials of the pandemic, many are hoping for a new beginning, and that may mean moving. Let’s connect today to talk about your new goals and options in today’s market.
Earlier this month, the Bureau of Labor Statistics (BLS) released their most recent Jobs Report. The report revealed that the economy lost 140,000 jobs in December. That’s a devastating number and dramatically impacts those households that lost a source of income. However, we need to give it some context. Greg Ip, Chief Economics Commentator at the Wall Street Journal (WSJ), explains:
“The economy is probably not slipping back into recession. The drop was induced by new restrictions on activity as the pandemic raged out of control. Leisure and hospitality, which includes restaurants, hotels, and amusement parks, tumbled 498,000.”
In the same report, Michael Pearce, Senior U.S. Economist of Capital Economics, agreed:
“The 140,000 drop in non-farm payrolls was entirely due to a massive plunge in leisure and hospitality employment, as bars and restaurants across the country have been forced to close in response to the surge in coronavirus infections. With employment in most other sectors rising strongly, the economy appears to be carrying more momentum into 2021 than we had thought.”
Once the vaccine is distributed throughout the country and the pandemic is successfully under control, the vast majority of those 480,000 jobs will come back.
Here are two additional comments from other experts, also reported by the WSJ that day:
Nick Bunker, Head of Research in North America for Indeed:
“These numbers are distressing, but they are reflective of the time when coronavirus vaccines were not rolled out and federal fiscal policy was still deadlocked. Hopefully, the recent legislation can help build a bridge to a time when vaccines are fully rolled out and the labor market can sustainably heal.”
Michael Feroli, Chief U.S. Economist for JPMorgan Chase:
“The good news in today’s report is that outside the hopefully temporary hit to the food service industry, the rest of the labor market appears to be holding in despite the latest public health challenges.”
What impact will this have on the real estate market in 2021?
Some are concerned that with millions of Americans unemployed, we may see distressed properties (foreclosures and short sales) dominate the housing market once again. Rick Sharga, Executive Vice President at RealtyTrac, along with most other experts, doesn’t believe that will be the case:
“There are reasons to be cautiously optimistic despite massive unemployment levels and uncertainty about government policies under the new Administration. But while anything is possible, it’s highly unlikely that we’ll see another foreclosure tsunami or housing market crash.”
For the households that lost a wage earner, these are extremely difficult times. Hopefully, the new stimulus package will lessen some of their pain. The health crisis, however, should vastly improve by mid-year with expectations that the jobs market will also progress significantly.
If spending more time at home over the past year is making you really think hard about buying a home instead of renting one, you’re not alone. You may be wondering, however, if the dollars and cents add up in your favor as home prices continue to rise. According to the experts, in many cases, it’s still more affordable to buy a home than rent one. Here’s why.
ATTOM Data Solutions recently released the 2021 Rental Affordability Report, which states:
“Owning a median-priced three-bedroom home is more affordable than renting a three-bedroom property in 572, or 63 percent of the 915 U.S. counties analyzed for the report.
That has happened even though median home prices have increased more than average rents over the past year in 83 percent of those counties and have risen more than wages in almost two-thirds of the nation.”
How is this possible?
The answer: historically low mortgage interest rates. Todd Teta, Chief Product Officer with ATTOM Data Solutions, explains:
“Home-prices are rising faster than rents and wages in a majority of the country. Yet, home ownership is still more affordable, as amazingly low mortgage rates that dropped below 3 percent are helping to keep the cost of rising home prices in check.”
“It’s startling to see that kind of trend. But it shows how both the cost of renting has been relatively high compared to the cost of ownership and how declining interest rates are having a notable impact on the housing market and home ownership. The coming year is totally uncertain, amid so many questions connected to the Coronavirus pandemic and the broader economy. But right now, owning a home still appears to be a financially-sound choice for those who can afford it.”
If you’re considering buying a home this year, let’s connect today to discuss the options that match your budget while affordability is in your favor.
Should I Wait for Lower Mortgage Interest Rates?
Historically low mortgage rates are a big motivator for homebuyers right now. In 2020 alone, rates hit new record-lows 16 times, and the trend continued into the early part of this year. Many hopeful homebuyers are now wondering if they should put their plans on hold and wait for the lowest rates imaginable. However, the reality is, acting sooner rather than later may be the actual win if you’re ready to buy a home.
According to Greg McBride, Chief Financial Analyst for Bankrate:
“As vaccines become more widely available and a return to normal starts to come into view, we’ll see mortgage rates bounce off the record lows.”
While only a slight increase in mortgage rates is projected for 2021, some experts believe they will start to rise. Over the past week, for example, the average mortgage rate ticked up slightly, reaching 2.79%. This is still incredibly low compared to the trends we’ve seen over time. According to Freddie Mac:
“Borrowers are smart to take advantage of these low rates now and will certainly benefit as a result.”
As mortgage rates rise, the increase impacts the overall cost of purchasing a home. The higher the rate, the higher your monthly mortgage payment, especially as home prices rise too. Sam Khater, Chief Economist at Freddie Mac, says:
“The forces behind the drop in rates have been shifting over the last few months and rates are poised to rise modestly this year. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential homebuyers during the spring home sales season.”
What does this mean for buyers?
Right now, the inventory of houses for sale is also at a historic low, making it more challenging than normal to find a home to buy in many areas. As more buyers hit the market in the typically busy spring buying season, it may become even harder to find a home in the coming months. With this in mind, Len Keifer, Deputy Chief Economist for Freddie Mac, recommends taking advantage of both low mortgage rates and the opportunity to buy:
“If you’ve found a home that fits your needs at a price you can afford, it might be better to act now rather than wait for future rate declines that may never come and a future that likely holds very tight inventory.”
While today’s low mortgage rates provide great opportunities for homebuyers, we may not see them stick around forever. If you’re ready to buy a home, let’s connect so you can take advantage of what today’s market has to offer.
In 1963, Martin Luther King, Jr. inspired a powerful movement with his famous “I Have a Dream” speech. Through his passion and determination, he sparked interest, ambition, and courage in his audience. Today, reflecting on his message encourages many of us to think about our own dreams, goals, beliefs, and aspirations. For many Americans, one of those common goals is owning a home: a piece of land, a roof over our heads, and a place where we can grow and flourish.
If you’re dreaming of buying a home this year, start by connecting with a local real estate professional to understand what goes into the process. With a trusted advisor at your side, you can then begin to answer the questions below to set yourself up for homebuying success.
1. How Can I Better Understand the Process, and How Much Can I Afford?
The process of buying a home is not one to enter into lightly. You need to decide on key things like how long you plan on living in an area, school districts you prefer, what kind of commute works for you, and how much you can afford to spend.
Keep in mind, before you start the process to purchase a home, you’ll also need to apply for a mortgage. Lenders will evaluate several factors connected to your financial track record, one of which is your credit history. They’ll want to see how well you’ve been able to minimize past debts, so make sure you’ve been paying your student loans, credit cards, and car loans on time. If your financial situation has changed recently, be sure to discuss that with your lender as well. Most agents have loan officers they trust and will provide referrals for you.
According to ConsumerReports.org:
“Financial planners recommend limiting the amount you spend on housing to 25 percent of your monthly budget.”
2. How Much Do I Need for a Down Payment?
In addition to knowing how much you can afford on a monthly mortgage payment, understanding how much you’ll need for a down payment is another critical step. Thankfully, there are many different options and resources in the market to potentially reduce the amount you may think you need to put down.
If you’re concerned about saving for a down payment, start small and be consistent. A little bit each month goes a long way. Jumpstart your savings by automatically adding a portion of your monthly paycheck into a separate savings account or house fund. AmericaSaves.org says:
“Over time, these automatic deposits add up. For example, $50 a month accumulates to $600 a year and $3,000 after five years, plus interest that has compounded.”
Before you know it, you’ll have enough for a down payment if you’re disciplined and thoughtful about your process.
3. Saving Takes Time: Practice Living on a Budget
As tempting as it is to pass the extra time you may be spending at home these days with a little retail therapy, putting that extra money toward your down payment will help accelerate your path to homeownership. It’s the little things that count, so start trying to live on a slightly tighter budget if you aren’t doing so already. A budget will allow you to save more for your down payment and help you pay down other debts to improve your credit score.
“If there is any silver lining to the current economic landscape, it’s that mortgage rates are hanging around record lows…Additionally, shelter-in-place orders helped many who were fortunate enough to keep their jobs save for a down payment — one of the largest hurdles of buying a home. The combination of low rates and the opportunity to save is enabling many millennials to move up their home buying timeline.”
While you don’t need to cut all of the extras out of your current lifestyle, making smarter choices and limiting your spending in areas where you can slim down will make a big difference.
If homeownership is on your dream list this year, take a good look at what you can prioritize to help you get there. To determine the steps you should take to start the process, let’s connect today.