WINTER 2017
BUYING A HOME
THINGS TO CONSIDER WHEN
EDITION
TABLE OF CONTENTS
WHAT’S HAPPENING IN THE HOUSING MARKET?
WHAT YOU NEED TO KNOW BEFORE YOU BUY
WHAT TO EXPECT WHEN BUYING A HOME
3
4 REASONS TO BUY A HOME THIS WINTER
5
BUYING IS NOW 37.7% CHEAPER THAN RENTING IN THE US
6
HOME PRICES OVER THE LAST YEAR
7
BUYING A HOME? CONSIDER COST NOT JUST PRICE
8
THE COST OF RENTING VS. BUYING [INFOGRAPHIC]
STARTING TO LOOK FOR A HOME? KNOW WHAT YOU WANT
VS. WHAT YOU NEED
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10
YOU NEED A PROFESSIONAL WHEN BUYING A HOME
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WHAT DO YOU ACTUALLY NEED TO QUALIFY FOR A MORTGAGE?
13
YOU CAN SAVE FOR A DOWN PAYMENT FASTER THAN YOU THINK
14
WHY GETTING PRE-APPROVED SHOULD BE YOUR FIRST STEP
15
WHAT YOU NEED TO KNOW ABOUT THE MORTGAGE PROCESS
16
GETTING A MORTGAGE: WHY SO MUCH PAPERWORK?
17
READY TO MAKE AN OFFER? 4 TIPS FOR SUCCESS
19
WHAT TO EXPECT WHEN HOME INSPECTING
20
HAVE YOU PUT ASIDE ENOUGH FOR CLOSING COSTS?
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Here are four great reasons to consider buying a home today instead of waiting.
1. Prices Will Continue to Rise
CoreLogic’s latest Home Price Index reports that home prices have appreciated by 6.3% over
the last 12 months. The same report predicts that prices will continue to increase at a rate of
5.2% over the next year.
The bottom in home prices has come and gone. Home values will continue to appreciate for
years. Waiting no longer makes sense.
2. Mortgage Interest Rates Are Projected to Increase
Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year
mortgage have remained around 4%. Most experts predict that they will begin to rise over the
next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac & the National
Association of Realtors are in unison, projecting that rates will increase by this time
next year.
An increase in rates will impact YOUR monthly mortgage payment. A year from now, your
housing expense will increase if a mortgage is necessary to buy your next home.
4 REASONS TO BUY A HOME THIS WINTER!
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3. Either Way You are Paying a Mortgage
As a paper from the Joint Center for Housing Studies at Harvard University explains:
“Households must consume housing whether they own or rent. Not even accounting for
more favorable tax treatment of owning, homeowners pay debt service to pay down
their own principal while households that rent pay down the principal of a landlord plus
a rate of return. That’s yet another reason owning often does—as Americans intuit—
end up making more financial sense than renting.
4. It’s Time to Move On with Your Life
The ‘cost’ of a home is determined by two major components: the price of the home and the
current mortgage rate. It appears that both are on the rise.
But what if they weren’t? Would you wait?
Look at the actual reason you are buying and decide whether it is worth waiting. Whether you
want to have a great place for your children to grow up, you want your family to be safer or
you just want to have control over renovations, maybe now is the time to buy.
If the right thing for you and your family is to purchase a home this year, buying
sooner rather than later could lead to substantial savings.
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The results of the latest Rent vs. Buy Report from Trulia show that homeownership remains
cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro
areas in the United States.
The updated numbers actually show that the range is an average of 17.4% less expensive in
Honolulu (HI), all the way up to 53.2% less expensive in Miami & West Palm Beach (FL), and
37.7% nationwide!
Other interesting findings in the report include:
Interest rates have remained low, and even though home prices have appreciated around
the country, they haven’t greatly outpaced rental appreciation.
Home prices would have to appreciate by a range of over 23% in Honolulu (HI), up to over
45% in Ventura County (CA), to reach the tipping point of renting being less expensive
than buying.
Nationally, rates would have to reach 9.1%, a 145% increase over today’s average of 3.7%,
for renting to be cheaper than buying. Rates haven’t been that high since January of
1995, according to Freddie Mac.
Bottom Line
Buying a home makes sense socially and financially. If you are one of the many renters out
there who would like to evaluate your ability to buy this year, let's get together to find your
dream home.
BUYING IS NOW 37.7% CHEAPER THAN
RENTING IN THE US
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HOME PRICES OVER THE LAST YEAR
Every quarter, the Federal Housing Finance Agency (FHFA) reports on the year-over-year
changes in home prices. Below, you will see that prices are up year-over-year in every region.
Year-over-Year Prices Regionally
Looking at the breakdown by state, you can see that each state is appreciating at a different
rate. This is important to know if you are planning on relocating to a different area of the
country. Waiting to move may end up costing you more!
Year-over-Year Prices By State
$92.58
Mortgage Interest Rate
Payment (P&I)
Today $250,000
4.00% $1,193.54
Q4 2017
$263,250
4.20% $1,286.12
Difference in Monthly Payment
Monthly Annually Over 30 Years
$92.58 $1,110.96
$33,329
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*Rates based on Freddie Mac’s prediction at time of print
As a seller, you will be most concerned about ‘short term price’ – where home values
are headed over the next six months. As a buyer, however, you must not be concerned
about price, but instead about the ‘long term cost’ of the home.
The Mortgage Bankers Association (MBA), the National Association of Realtors (NAR)
and Freddie Mac all project that mortgage interest rates will increase by this time next
year. According to CoreLogic’s most recent Home Price Index Report, home prices will
appreciate by 5.2% over the next 12 months.
What Does This Mean as a Buyer?
Here is a simple demonstration of the impact an interest rate increase would have on
the mortgage payment of a home selling for approximately $250,000 today if home
prices appreciate by the 5.2% predicted by CoreLogic over the next twelve months:
BUYING A HOME?
CONSIDER COST NOT JUST PRICE
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STARTING TO LOOK FOR A HOME? KNOW WHAT
YOU WANT VS. WHAT YOU NEED
In this day and age of being able to shop for anything anywhere, it is really important to know
what you’re looking for when you start your home search.
If you’ve been thinking about buying a home of your own for some time now, you’ve probably
come up with a list of things that you’d LOVE to have in your new home. Many new homebuyers
fantasize about the amenities that they see on television or Pinterest, and start looking at the
countless homes listed for sale with rose-colored glasses.
Do you really need that farmhouse sink in the kitchen in order to be happy with your home choice?
Would a two-car garage be a convenience or a necessity? Could the man cave of your dreams be a
future renovation project instead of a make or break now?
The first step in your home buying process should be to get pre-approved for your mortgage. This
allows you to know your budget before you fall in love with a home that is way outside of it.
The next step is to list all the features of a home that you would like & to qualify them as follows:
‘Must Haves’ if this property does not have these items, then it shouldn’t even be
considered. (ex: distance from work or family, number of bedrooms/bathrooms)
‘Should Haves’ – if the property hits all of the must haves and some of the should haves, it
stays in contention, but does not need to have all of these features.
‘Absolute Wish List’ if we find a property in our budget that has all of the ‘must haves,’
most of the ‘should haves,’ and ANY of these, it’s the winner!
Bottom Line
Having this list flushed out before starting your search will save you time and frustration, while
also letting your agent know what features are most important to you before starting to show you
houses in your desired area.
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YOU NEED A PROFESSIONAL
WHEN BUYING A HOME
Many people wonder whether they
should hire a real estate professional
to assist them in buying their dream
home or if they should first try to do it
on their own. In today’s market: you
need an experienced professional!
You Need an Expert Guide if You
Are Traveling a Dangerous Path
The field of real estate is loaded with
land mines. You need a true expert to
guide you through the dangerous
pitfalls that currently exist. Finding a
home that is priced appropriately and
ready for you to move in to can be
tricky. An agent listens to your wants
and needs, and can sift out the homes
that do not fit within the parameters
of your “dream home.”
You Need a Skilled Negotiator
In today’s market, hiring a talented negotiator could save you thousands, perhaps tens of
thousands of dollars. Each step of the way – from the original offer, to the possible
renegotiation of that offer after a home inspection, to the possible cancellation of the deal
based on a troubled appraisal – you need someone who can keep the deal together until
it closes.
Realize that when an agent is negotiating their commission with you, they are negotiating
their own salary; the salary that keeps a roof over their family’s head; the salary that puts
food on their family’s table. If they are quick to take less when negotiating for themselves
and their families, what makes you think they will not act the same way when negotiating
for you and your family? If they were Clark Kent when negotiating with you, they will not
turn into Superman when negotiating with the buyer or seller in your deal.
Bottom Line
Famous sayings become famous because they are true. You get what you pay for. Just like a
good accountant or a good attorney, a good agent will save you money…not cost you money.
0.02%
0.34%
8.2%
21.2%
24.5%
32.7%
13.0%
500-549 550-599 600-649 650-699 700-749 750-799 800+
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WHAT DO YOU ACTUALLY NEED TO QUALIFY FOR
A MORTGAGE?
Fannie Mae's “What Do Consumers Know About The Mortgage Qualification Criteria?Study
revealed that Americans are misinformed about what is really required to qualify for a
mortgage when purchasing a home.
To help correct these misunderstandings, let’s take a look at the survey results compared to
the latest Ellie Mae Origination Insight Report, which focuses on recently approved loans.
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. 53.9% of
approved mortgages
had a credit score of
600-749.
Survey Results vs. What’s Really Required
53.9%
FICO Score
Distribution
12
Bottom Line
Whether buying your first home or moving up to your dream home, knowing your
options will definitely make the mortgage process easier. Your dream home may
already be within your reach.
76% of Americans either
don’t know (40%) or are
misinformed (36%) about
the minimum down
payment required.
Many believe that they
need at least 20% down
to buy their dream
home. New programs
actually let buyers put
down as little as 3%.
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YOU CAN SAVE FOR A DOWN PAYMENT FASTER
THAN YOU THINK
In a study conducted by Builder.com, researchers determined that nationwide, it would take “nearly
eight years” for a first-time buyer to save enough for a down payment on their dream home.
Depending on where you live, median rents, incomes and home prices all vary. By determining the
percentage of income a renter spends on housing in each state, and the amount needed for a 10%
down payment, they were able to establish how long (in years) it would take for an average resident
to save.
According to the study,
residents in South Dakota
are able to save for a
down payment the
quickest in just under 3.5
years.
On the right is a map
created using the data for
each state.
What if you only needed
to save 3%?
What if you were able to
take advantage of one of
the Freddie Mac or Fannie
Mae 3% down programs?
Suddenly saving for a down
payment no longer takes 5
or 10 years, but becomes
attainable in under two
years in many states (as
shown in the map on the
right).
Bottom Line
Whether you have just
started to save for a down
payment, or have been for
years, you may be closer
to your dream home than
you think!
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WHY GETTING PRE-APPROVED SHOULD BE
YOUR FIRST STEP
In many markets across the country, the amount of buyers searching for their dream home
greatly outnumbers the amount 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 pre-approved for a mortgage before starting your search.
But even if you are in a market that is not as competitive, knowing your budget will give you
the confidence to know 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:
Capacity: Your current and future ability to make your payments
Capital or cash reserves: The money, savings and investments you have that can be sold
quickly for cash
Collateral: The home, or type of home, that you would like to purchase
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 as well.
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Why is there so much paperwork mandated by
lenders for a mortgage loan application when
buying a home today? It seems that they need
to know everything about you and require
three separate sources to validate each and
every entry on the application form.
Many buyers are being told by friends and
family that the process was a hundred times
easier when they bought their home ten to
twenty years ago.
There are two very good reasons that the loan
process is much more onerous on today’s
buyer than perhaps any time in history.
GETTING A MORTGAGE:
WHY SO MUCH PAPERWORK?
1. The government has set new guidelines that now demand that the bank prove beyond
any doubt that you are indeed capable of paying the mortgage.
During the run-up in the housing market, many people qualified’ for mortgages that they could
never pay back. This led to millions of families losing their homes. The government wants to make
sure this can’t happen again.
2. The banks don’t want to be in the real estate business.
Over the last seven years, banks were forced to take on the responsibility of liquidating millions of
foreclosures and also negotiating another million+ short sales. Just like the government, they don’t
want more foreclosures. For that reason, they need to double (maybe even triple) check everything
on the application.
However, there is some good news about this situation.
The housing crash that mandated that banks be extremely strict on paperwork requirements also
allowed you to get a mortgage interest rate around 4%.
The friends and family who bought homes ten or twenty years ago experienced a simpler mortgage
application process but also paid a higher interest rate (the average 30-year fixed rate mortgage
was 8.12% in the 1990s and 6.29% in the 2000s).
If you went to the bank and offered to pay 7% instead of around 4%, they would probably bend over
backwards to make the process much easier.
Bottom Line
Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to
buy a home at historically low rates.
READY TO MAKE AN OFFER? 4 TIPS FOR SUCCESS
So you’ve been searching for that perfect house to call a ‘home’ and you finally found one!
The price is right, and in such a competitive market you want to make sure you make a good
offer so that you can guarantee your dream of making this house yours comes true!
Freddie Mac covered “4 Tips for Making an Offer” in their latest Executive Perspective. Here
are the 4 tips they covered along with some additional information for your consideration:
1. Understand How Much You Can Afford
“While it's not nearly as fun as house hunting, fully understanding your finances is
critical in making an offer.”
This ‘tip’ or ‘step’ really should take place before you start your home search process.
Getting pre-approved is one of many steps that will show home sellers that you are serious
about buying, and will allow you to make your offer with the confidence of knowing that you
have already been approved for a mortgage for that amount. You will also need to know if
you are prepared to make any repairs that may need to be made to the house (ex: new roof,
new furnace).
2. Act Fast
“Even though there are fewer investors, the inventory of homes for sale is also low
and competition for housing continues to heat up in many parts of the country.”
The inventory of homes listed for sale has remained well below the 6-month supply that is
needed for a ‘normal’ market. Buyer demand has continued to outpace the supply of homes
for sale, causing buyers to compete with each other for their dream home.
Make sure that as soon as you decide that you want to make an offer, you work with your
agent to present it as soon as possible.
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3. Make a Solid Offer
Freddie Mac offers this advice to help make your offer the strongest it can be:
“Your strongest offer will be comparable with other sales and listings in the neighborhood. A
licensed real estate agent active in the neighborhoods you are considering will be
instrumental in helping you put in a solid offer based on their experience and other key
considerations such as recent sales of similar homes, the condition of the house and what
you can afford.”
Consider ways of making your offer stand out! Many buyers write a personal letter to the
seller letting them know how much they would love to be the new homeowners. Your agent
will be able to help you figure out if there are any other ways your offer could stand above
the rest.
4. Be Prepared to Negotiate
“It's likely that you'll get at least one counteroffer from the sellers so be prepared. The two
things most likely to be negotiated are the selling price and closing date. Given that, you'll
be glad you did your homework first to understand how much you can afford.
Your agent will also be key in the negotiation process, giving you guidance on the
counteroffer and making sure that the agreed-to contract terms are met.”
If your offer is approved, Freddie Mac urges you to “always get an independent home
inspection, so you know the true condition of the home. If the inspection uncovers
undisclosed problems or issues, you can typically re-negotiate the terms or cancel the
contract.”
Bottom Line
Whether buying your first home or your fifth, having a local real estate professional who is an
expert in their market on your side is your best bet to make sure the process goes smoothly.
Let’s talk about how we can make your dreams of homeownership a reality!
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WHAT TO EXPECT WHEN HOME INSPECTING
How to Choose an Inspector
Your agent will most likely have a short list of inspectors that they have worked with in the
past that they can recommend to you. Realtor.com suggests that you consider the following 5
areas when choosing the right home inspector for you:
Qualifications – find out what’s included in your inspection & if the age or location of
your home may warrant specific certifications or specialties.
Sample Reports – ask for a sample inspection report so you can review how thoroughly
they will be inspecting your dream home. The more detailed the report the better in
most cases.
References – do your homework – ask for phone numbers and names of past clients that
you can call to ask about their experience.
Memberships – Not all inspectors belong to a national or state association of home
inspectors, and membership in one of these groups should not be the only way to
evaluate your choice. Often membership in one of these organizations means that there is
continued training and education provided.
Errors & Omission Insurance – Find out what the liability of the inspector or inspection
company is once the inspection is over. The inspector is only human after all, and it is
possible that they might miss something they should have seen.
Ask your inspector if it’s ok for you to tag along during the inspection. That way they can
point out anything that should be addressed or fixed.
Don’t be surprised to see your inspector climbing on the roof, crawling around in the attic,
and on the floors. The job of the inspector is to protect your investment and find any issues
with the home, including but not limited to: the roof, plumbing, electrical components,
appliances, heating & air conditioning systems, ventilation, windows, the fireplace &
chimney, the foundation & so much more!
Bottom Line
They say ‘ignorance is bliss,’ but not when investing your hard-earned money in a home of
your own. Work with a professional you can trust to give you the most information possible
about your new home so that you can make the most educated decision about your purchase.
So you made an offer, it was accepted, and
now your next task is to have the home
inspected prior to closing. More often than
not, your agent may have made your offer
contingent on a clean home inspection.
This contingency allows you to renegotiate
the price paid for the home, ask the sellers
to cover repairs, or even, in some cases, walk
away. Your agent can advise you on the best
course of action once the report is filed.
HAVE YOU PUT ASIDE ENOUGH FOR
CLOSING COSTS?
There are many potential homebuyers, and even sellers, who believe that you need at least a
20% down payment in order to buy a home, or move on to their next home. Time after time,
we have dispelled this myth by showing that there are many loan programs that allow you to
put down as little as 3% (or 0% with a VA loan).
If you have saved up your down payment and are ready to start your home search, one other
piece of the puzzle is to make sure that you have saved enough for your closing costs.
Freddie Mac defines closing costs as:
“Closing costs, also called settlement fees, will need to be paid when you obtain a
mortgage. These are fees charged by people representing your purchase, including
your lender, real estate agent, and other third parties involved in the transaction.
Closing costs are typically between 2 and 5% of your purchase price.”
We’ve recently heard from many first-time homebuyers that they wished that someone had
let them know that closing costs could be so high. If you think about it, with a low down
payment program, your closing costs could equal the amount that you saved for your down
payment.
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Here is a list of just some of the fees/costs that may be included in your closing costs,
depending on where the home you wish to purchase is located:
Is there any way to avoid paying closing costs?
Work with your lender and real estate agent to see if there are any ways to decrease or defer
your closing costs. There are no-closing mortgages available, but they end up costing you
more in the end with a higher interest rate, or by wrapping the closing costs into the total
cost of the mortgage (meaning you’ll end up paying interest on your closing costs).
Home buyers can also negotiate with the seller over who pays these fees. Sometimes the
seller will agree to assume the buyer’s closing fees in order to get the deal finalized.
Bottom Line
Speak with your lender and agent early and often to determine how much you’ll be
responsible for at closing. Finding out you’ll need to come up with thousands of dollars right
before closing is not a surprise anyone is ever looking forward to.
Government recording costs
Appraisal fees
Credit report fees
Lender origination fees
Title services (insurance, search fees)
Tax service fees
Survey fees
Attorney fees
Underwriting fees
CONTACT ME TO TALK MORE
I’m sure you have questions and concerns…
I would love to talk with you more about what you read here, and help you on the path to
buying a home. My contact information is below. I look forward to hearing from you…
Mick Davidson
M Home Realty
7280 NW 87
th
Terr Ste 210
Kansas City, MO 64153
MHomeRealty.com
cell (816) 646-1199
facebook.com/kchousebuyer