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Tara Paras

Why Is There So Much Paperwork Required to Get a Mortgage?

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Why Is There So Much Paperwork Required to Get a Mortgage? | Simplifying The Market

Why is there so much paperwork mandated by the lenders for a mortgage loan application when buying a home today? It seems that they need to know everything about you and requires 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.

1. The government has set new guidelines that now demand that the bank proves beyond any doubt that you are indeed capable of paying the mortgage.

During the run-up to the housing crisis, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. 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 plus 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 in the 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 backward 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.

5 Reasons to Sell This Winter!

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5 Reasons to Sell This Winter! | Simplifying The Market

Here are five reasons listing your home for sale this winter makes sense.

1. Demand Is Strong

The latest Buyer Traffic Report from the National Association of Realtors (NAR) shows that buyer demand remains very strong throughout the vast majority of the country. These buyers are ready, willing and able to purchase… and are in the market right now! More often than not, multiple buyers are competing with each other to buy a home.

Take advantage of the buyer activity currently in the market.

2. There Is Less Competition Now

Housing inventory is still under the 6-month supply that is needed for a normal housing market. This means that, in the majority of the country, there are not enough homes for sale to satisfy the number of buyers in the market. This is good news for homeowners who have gained equity as their home values have increased. However, additional inventory could be coming to the market soon.

Historically, the average number of years a homeowner stayed in their home was six, but has hovered between nine and ten years since 2011. There is a pent-up desire for many homeowners to move, as they were unable to sell over the last few years because of a negative equity situation. As home values continue to appreciate, more and more homeowners will be given the freedom to move.

The choices buyers have will continue to increase. Don’t wait until this other inventory comes to market before you decide to sell.

3. The Process Will Be Quicker

Today’s competitive environment has forced buyers to do all they can to stand out from the crowd, including getting pre-approved for their mortgage financing. This makes the entire selling process much faster and much simpler as buyers know exactly what they can afford before home shopping. According to Ellie Mae’s latest Origination Insights Report, the time to close a loan has dropped to 44 days, after seeing a 12-month high of 48 days in January.

4. There Will Never Be a Better Time to Move Up

If your next move will be into a premium or luxury home, now is the time to move up! The inventory of homes for sale at these higher price ranges has forced these markets into a buyer’s market. This means that if you are planning on selling a starter or trade-up home, your home will sell quickly, AND you’ll be able to find a premium home to call your own!

Prices are projected to appreciate by 4.7% over the next year according to CoreLogic. If you are moving to a higher-priced home, it will wind up costing you more in raw dollars (both in down payment and mortgage payment) if you wait.

5. It’s Time to Move on With Your Life

Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?

Only you know the answers to the questions above. You have the power to take control of the situation by putting your home on the market. Perhaps the time has come for you and your family to move on and start living the life you desire.

That is what is truly important.

Median Days on the Market Drops to 34! [INFOGRAPHIC]

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Median Days on the Market Drops to 34! [INFOGRAPHIC] | Simplifying The Market

Median Days on the Market Drops to 34! [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

  • The National Association of REALTORS® surveyed their members for their Confidence Index.
  • The REALTORS® Confidence Index is a key indicator of housing market strength based on a monthly survey sent to over 50,000 real estate practitioners. Practitioners are asked about their expectations for home sales, prices and market conditions.
  • Homes sold in less than 60 days in 44 out of 50 states, and Washington D.C.
  • Homes typically went under contract in 34 days in October!

The Real Reason Home Prices are Increasing

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The Real Reason Home Prices are Increasing | Simplifying The Market

There are many unsubstantiated theories as to why home values are continuing to increase. From those who are worried that lending standards are again becoming too lenient (data shows this is untrue), to those who are concerned that prices are again approaching boom peaks because of “irrational exuberance” (this is also untrue as prices are not at peak levels when they are adjusted for inflation), there seems to be no shortage of opinion.

However, the increase in prices is easily explained by the theory of supply & demand. Whenever there is a limited supply of an item that is in high demand, prices increase.

It is that simple. In real estate, it takes a six-month supply of existing salable inventory to maintain pricing stability. In most housing markets, anything less than six months will cause home values to appreciate and anything more than seven months will cause prices to depreciate (see chart 1).

The Real Reason Home Prices are Increasing | Simplifying The Market

According to the Existing Home Sales Report from the National Association of Realtors (NAR), the monthly inventory of homes has been below six months for the last four years (see chart 2).

The Real Reason Home Prices are Increasing | Simplifying The Market

Bottom Line

If buyer demand outpaces the current supply of existing homes for sale, prices will continue to appreciate. Nothing nefarious is taking place. It is simply the theory of supply & demand working as it should.

2 Charts That Show the Truth about Home Affordability

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2 Charts That Show the Truth about Home Affordability | Simplifying The Market

There is a lot of discussion about the current state of housing affordability for both first-time and move-up buyers, and much of the narrative is tarnished with a negative slant. However, the truth is that housing affordability is better today than at almost any time in our history.

The naysayers are correct in the fact that affordability today is not as good as it has been over the last several years. But, we must remember that home prices collapsed during the housing crash, and distressed properties (foreclosures and short sales) kept home values depressed for years. When we compare affordability to the decades that proceeded the crash, a different story is revealed.

Here is a graph of the National Association of Realtors’ Housing Affordability Index. The higher the graph, the more affordable homes are.

2 Charts That Show the Truth about Home Affordability | Simplifying The Market

We can see that affordability is better today than in the fifteen years prior to the boom and bust.

CoreLogic just published a report showing the National Homebuyers’ “Typical Mortgage Payment.” Here is a graph of their findings:

2 Charts That Show the Truth about Home Affordability | Simplifying The Market

It reveals that, though a ‘typical’ housing payment was less expensive in 2012 (remember distressed properties), it is currently less expensive than it was in 2000 and is still projected to be lower next year than it was in 2000.

Bottom Line

Mark Fleming, Chief Economist at First American, explained it best:

“While borrowing power for the potential home buyer has fallen relative to the low point of 2012, it remains high today and will remain high next year, relative to the long run average. If you don’t want to rent anymore and are considering becoming a homeowner, even if mortgage rates rise next year, your borrowing power will remain strong by historic standards.”

Low Interest Rates Have a High Impact on Your Purchasing Power

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According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 3.92%, 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.

Low Interest Rates Have a High Impact on Your Purchasing Power | Simplifying The Market

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 NOT Owning Your Home

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The Cost of NOT Owning Your Home | Simplifying The Market

Owning a home has great financial benefits, yet many continue to rent! 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:

“In reality, buying or renting a home is an intensely personal decision, with emotional and even financial considerations that go beyond whether to invest in this one (admittedly large) asset. Looking strictly at housing market numbers, there is a concrete point at which buying a home makes more financial sense than renting it.”

What proof exists that owning is financially better than renting?

1. We recently highlighted the top 5 financial benefits of homeownership:

  • Homeownership is a form of forced savings.
  • Homeownership provides tax savings.
  • Homeownership allows you to lock in your monthly housing cost.
  • Buying a home is cheaper than renting.
  • No other investment lets you live inside of it.

2. Studies have shown that a homeowner’s net worth is 44x greater than that of a renter.

3. Just a few months ago, we explained that a family that purchased an average-priced home at the beginning of 2017 could build more than $48,000 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 payment– along with a profit margin!!

Bottom Line

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

Existing Home Sales Slowed by a Lack of Listings [INFOGRAPHIC]

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Existing Home Sales Slowed by a Lack of Listings [INFOGRAPHIC] | Simplifying the Market

Some Highlights:

  • The inventory of existing homes for sale has dropped year-over-year for the last 29 consecutive months and is now at a 3.9-month supply.
  • Existing home sales are currently at an annual pace of 5.48 million, the highest pace since June of this year, but down 0.9% from October 2016.
  • NAR’s Chief Economist, Lawrence Yun, had this to say: “While the housing market gained a little more momentum last month, sales are still below year ago levels because low inventory is limiting choices for prospective buyers and keeping price growth elevated.”

Bubble Alert! Is it Getting Too Easy to Get a Mortgage?

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Bubble Alert! Is it Getting Too Easy to Get a Mortgage? | Simplifying The Market

There is little doubt that it is easier to get a home mortgage today than it was last year. The Mortgage Credit Availability Index (MCAI), published by the Mortgage Bankers Association, shows that mortgage credit has become more available in each of the last several years. In fact, in just the last year:

  • More buyers are putting less than 20% down to purchase a home
  • The average credit score on closed mortgages is lower
  • More low-down-payment programs have been introduced

This has some people worrying that we are returning to the lax lending standards which led to the boom and bust that real estate experienced ten years ago. Let’s alleviate some of that concern.

The graph below shows the MCAI going back to the boom years of 2004-2005. The higher the graph line, the easier it was to get a mortgage.

Bubble Alert! Is it Getting Too Easy to Get a Mortgage? | Simplifying The Market

 

As you can see, lending standards were much more lenient from 2004 to 2007. Though it has gradually become easier to get a mortgage since 2011, we are nowhere near the lenient standards during the boom.

The Urban Institute also publishes a Home Credit Availability Index (HCAI). According to the Institute, the HCAI:

“Measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates … it is easier to get a loan.”

Here is a graph showing their findings:

Bubble Alert! Is it Getting Too Easy to Get a Mortgage? | Simplifying The Market

Again, today’s lending standards are nowhere near the levels of the boom years. As a matter of fact, they are more stringent than they were even before the boom.

Bottom Line

It is getting easier to gain financing for a home purchase. However, we are not seeing the irresponsible lending that caused the housing crisis.