The #1 Misconception in the Homebuying Process

The #1 Misconception in the Homebuying Process | Simplifying The Market

After over a year of moderating home prices, it appears home value appreciation is about to reaccelerate. Skylar Olsen, Director of Economic Research at Zillow, explained in a recent article:

 “A year ago, a combination of a government shutdown, stock market slump and mortgage rate spike caused a long-anticipated inventory rise. That supposed boom turned out to be a short-lived mirage as buyers came back into the market and more than erased the inventory gains. As a natural reaction, the recent slowdown in home values looks like it’s set to reverse back.”

CoreLogic, in their January 2020 Market Pulse Report, agrees with Olsen, projecting home value appreciation in all fifty states this year. Here’s the breakdown:

  • 21 states appreciating 5% or more
  • 26 states appreciating between 3-5%
  • Only 3 states appreciating less than 3%

The Misconception

Many believe when real estate values are increasing, owning a home becomes less affordable. That misconception is not necessarily true.

In most cases, homes are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by almost a full percentage point since this time last year.

Another major piece of the equation is a buyer’s income. The median family income has risen by 5% over the last year, contributing to the affordability factor.

Black Knight, in their latest Mortgage Monitor, addressed this exact issue:

 “Despite the average home price increasing by nearly $13,000 from just over a year ago, the monthly mortgage payment required to buy that same home has actually dropped by 10% over that same span due to falling interest rates…

Put another way, prospective homebuyers can now purchase a $48K more expensive home than a year ago while still paying the same in principal and interest, a 16% increase in buying power.”

Bottom Line

If you’re thinking about purchasing a home, realize that homes are still affordable even though prices are increasing. As the Black Knight report concluded:

“Even with home price growth accelerating, today’s low-interest-rate environment has made home affordability the best it’s been since early 2018.”

Content previously posted on Keeping Current Matters

How the Housing Market Benefits with Uncertainty in the World

How the Housing Market Benefits with Uncertainty in the World | Simplifying The Market

It’s hard to listen to today’s news without hearing about the uncertainty surrounding global markets, the spread of the coronavirus, and tensions in the Middle East, just to name a few. These concerns have caused some to question their investment plans going forward.

As an example, in Vanguard’s Global Outlook for 2020, the fund explains,

“Slowing global growth and elevated uncertainty create a fragile backdrop for markets in 2020 and beyond.”

Is there a silver lining to this cloud of doubt?

Some worry this could cause concern for the U.S. housing market. The uncertainty, however, may actually mean good news for real estate.

Mark Fleming, Chief Economist at First American, discussed the situation in a recent report,

“Global events and uncertainty…impact the U.S. economy, and more specifically, the U.S. housing market…U.S. bonds, backed by the full faith and credit of the U.S. government, are widely considered the safest investments in the world. When global investors sense increased uncertainty, there is a ‘flight to safety’ in U.S. Treasury bonds, which causes their price to go up, and their yield to go down.”

Last week, in a HousingWire article, Kathleen Howley reaffirmed Fleming’s point,

“The death toll from the coronavirus already has passed Severe Acute Respiratory Syndrome, or SARS, that bruised the world’s economy in 2003…That’s making investors around the world anxious, and when they get anxious, they tend to sell off stocks and seek the safe haven of U.S. bonds. An increase in competition for bonds means investors, including the people who buy mortgage-backed bonds, have to take lower yields. That translates into lower mortgage rates.”

The yield from treasury bonds is the rate investors receive when they purchase the bond. Historically, when the treasury rate moves up or down, the 30-year mortgage rate follows. Here’s a powerful graph showing the relationship between the two over the last 48 years:Popular Perspective Delivers Gift to U.S. Housing Market | Simplifying The MarketHow might concerns about global challenges impact the housing market in 2020? Fleming explains,

“Even a small change in the 10-year Treasury due to increased uncertainty, let’s say a slight drop to 1.6 percent, would imply a 30-year, fixed mortgage rate as low as 3.3 percent. Assuming no change in household income, that would mean a house-buying power gain of $21,000, a five percent increase.”

Bottom Line

For a multitude of reasons, 2020 could be a challenging year. It seems, however, real estate will do just fine. As Fleming concluded in his report:

“Amid uncertainty, the house-buying power of U.S. consumers can benefit significantly.”

Content previously posted on Keeping Current Matters

Homes Are More Affordable Today, Not Less Affordable

Homes Are More Affordable Today, Not Less Affordable | Simplifying The Market

There’s a current narrative that owning a home today is less affordable than it has been in the past. The reason some are making this claim is because house prices have substantially increased over the last several years.

It’s not, however, just the price of a home that matters.

Homes, in most cases, are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by over a full percentage point since December 2018. Another major piece of the affordability equation is a buyer’s income. The median family income has risen by approximately 3% over the last year.

The National Association of Realtors (NAR) releases a monthly Housing Affordability Index. The latest index shows that home affordability is better today than at almost any point over the last 30 years. The index determines how affordable homes are based on the following:

“A Home Affordability Index value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index of 120 signifies that a family earning the median income has 20 percent more than the level of income needed pay the mortgage on a median-priced home, assuming a 20 percent down payment so that the monthly payment and interest will not exceed 25 percent of this level of income (qualifying income).”

The higher the index, therefore, the more affordable homes are. Here is a graph showing the index since 1990:Homes Are More Affordable Today, Not Less Affordable | Simplifying The MarketObviously, affordability was better during the housing crash when distressed properties – foreclosures and short sales – sold at major discounts (2009-2015). Outside of that period, however, homes are more affordable today than any other year since 1990, except for 2016.

The report on the index also includes a section that calculates the mortgage payment on a median priced home as a percentage of the median national income. Historically, that percentage is just above 21%. Here are the percentages since June of 2018:Homes Are More Affordable Today, Not Less Affordable | Simplifying The MarketAgain, we can see that affordability is much better today than the historical average and has been getting better over the last year and a half.

Bottom Line

Whether you’re thinking about buying your first home or moving up to the home of your dreams, don’t let the false narrative about affordability prevent you from moving forward. From an affordability standpoint, this is one of the best times to buy in the last 30 years.

Content previously posted on Keeping Current Matters

14 STEPS TO BUYING A HOME

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1. Get Pre-approved for a Loan
Before you start house hunting and making offers, you’ll need to begin the process of getting pre-approved for
a mortgage or loan. Pre-approval means you won’t waste time considering homes you cannot afford, and
ultimately makes your purchase offer competitive. You’ll need: copies of recent pay stubs, statements, and
copies of your past two W-2’s. We can recommend several excellent lenders.

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2. Decide on Your Budget
Calculate your down payment, your ability to qualify for a mortgage, and the closing costs associated with your
transaction to figure out a number you’re comfortable with — and how much home you can afford. Most loans

today require a down payment between 3.5-25% depending on the type and terms of the loan. There are zero-
money-down programs that you may qualify for, however, you will need to consult with your preferred lender to

determine which best suits your needs. Your mortgage payment to the lender can include the following items:
a. Principal and interest on the loan
b. Property taxes
c. Homeownerʼs insurance
d. Private Mortgage Insurance (PMI) if you put less than 20% down

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3. Explore Potential Neighborhoods
Exploring neighborhoods at different times of day (morning/mid-day/evening/weekdays vs. weekends) and
visiting local shops, restaurants, and parks can help you get a great feel for a neighborhood. Yelp reviews,
Google Reviews, and Google Maps are helpful tools for investigating everything from local school ratings to
average commute times.

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4. Start House Hunting
After loan pre-approval, you’ll be ready to kick-start the search. Be prepared to discuss with your REALTOR®
what you’re looking for in a future home. You’ll also need a list of your preferred neighborhoods or
communities. Think about your must-haves, like-to-haves, and deal breakers.

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5. Submit the Offer
Once the Paras Team help you find a home you love, you’ll work with us to create an offer. You’ll need: a pre-
approval letter from your lender; a personalized offer letter detailing what you love about the home (these are

particularly helpful in multi-offer situations); to decide on an Earnest Money deposit amount; to strategize
contract deadlines; and a list of comparable sales or Comparative Market Analysis report (your Paras Agent will
provide this for you).

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6. You’re Under Contract!
The offer has been submitted, negotiated, and accepted: you’re under contract! The process from here to the
finish line is generally around 30 days. Remember: within the first 4 days of acceptance, you’ll need to deposit
your Earnest Money check or wire at the Title Company.

Jessie Anderson
REALTOR®
Licensed Personal Assistant
801-673-8240
Jessie@ParasRealEstate.com

Kierstin Pierce
REALTOR®
801-809-6610
Kierstin@ParasRealEstate.com

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7. Lock in Your Interest Rate
Now that the home-buying process is off to a good start, be sure to call your mortgage lender to lock in your
interest rate. This will help prepare you for potential surprises at the closing table. Remember: do not make
any large purchases or open any lines of credit during the next 30 days! This could affect your credit and your
ability to obtain the loan.

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8. Home Inspection
You’ll have about 14 days to inspect the house during your Due Diligence Period. Find a home inspector you
trust to examine the home from top to bottom; we can provide a list of recommended inspectors. Consider
testing for radon gas, meth, mold, lead, or structural issues. You’ll want to be present during the home
inspection so you can ask questions and see potential problems for yourself before deciding which repairs to
request. Home inspections typically range from $300-$700 and are paid for by the buyer.

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9. Ask for Repairs
Once home inspections are complete, you’re ready to ask the seller for repairs. Consult with the Paras Team
to make sure you negotiate for the essentials — and skip the small stuff that could put your purchase at risk.

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10. Appraisal
Next, your lender will request an appraisal. As a buyer, you can’t do anything to influence this process, but it’s
a good idea to confirm that an appraisal has been requested. Appraisals range from $400-$600 and are paid
for by the buyer. When appraisal is complete — assuming the value is in line with the agreed-upon price —
the mortgage will continue. If not, you may be headed back to the negotiation table. Appraisals are part of the
Financing and Appraisal Deadline.

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11. Homeowner Insurance
As you approach Settlement, you’ll want to comparison shop to secure homeowner insurance on your new
home. Don’t skip this important step.

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12. Paperwork Prior to Settlement
A few days before Settlement, your paperwork — including the appraisal, income statements, and assets —
will be shared with your loan underwriter for final review. Two days before your Settlement date, your loan will
receive final approval and the loan documents will be ordered. The day prior to Settlement, an escrow officer
or closing attorney will calculate final costs and credits for both the buyer and seller.

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13. Settlement
Be prepared to hand over your closing costs (which range between 2-5% of your mortgage loan amount) and
down payment, and be ready to spend at least an hour signing documents. Remember: you will not get your
keys at the Settlement meeting. You’ll get your keys when possession terms from the contract are met (usually
1-3 business days after Settlement).

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14. It’s Official! You’re a Homeowner!!!
Once everything is signed and processed, the loan closes, property transfer is recorded, and possession terms
are met, the keys — and the home — are yours!

Remember: The buying process is intense, but with the right tools, preparation, and a stellar agent in your corner, it can also be fun!

2 Myths Holding Back Home Buyers

2 Myths Holding Back Home Buyers | Simplifying The Market

In a recent article, First American shared how millennials are not really any different from previous generations when it comes to the goal of homeownership; it is still a huge part of their American Dream. The piece, however, also reveals,

 “Saving for a down payment is one of the biggest obstacles faced by first-time home buyers. Dispelling the 20 percent down payment myth could open the path to homeownership for many more.”

 Myth #1: “I Need a 20% Down Payment”

Buyers often overestimate how much they need to qualify for a home loan. According to the same article:

“Americans still overestimate the qualifications needed to get a mortgage, resulting in qualified potential buyers not even considering homeownership. Indeed, the Urban Institute report revealed that 16 percent of consumers believed that the minimum down payment required by lenders is 20 percent or more, and another 40 percent didn’t know at all.”

While many potential buyers still think they need to put at least 20% down for the home of their dreams, they often don’t realize how many assistance programs are available with as little as 3% down. With a little research, many renters may actually be able to enter the housing market sooner than they ever imagined.

Myth #2: “I Need a 780 FICO® Score or Higher”

In addition to down payments, buyers are also often confused about the FICO® score it takes to qualify for a mortgage, believing a ‘good’ credit score is 780 or higher.

To debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans.2 Myths Holding Back Home Buyers | Simplifying The MarketAs indicated in the chart above, 50.23% of approved mortgages had a credit score of 500-749.

Bottom Line

Whether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Believe it or not – your dream home may already be within your reach.

Buying a home can be SCARY…Until you know the FACTS [INFOGRAPHIC]

Buying a home can be SCARY…Until you know the FACTS [INFOGRAPHIC] | Simplifying The Market

Buying a home can be SCARY…Until you know the FACTS [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

Many potential homebuyers believe they need a 20% down payment and a 780 FICO® score to qualify to buy a home. This stops many people from even trying to jump into homeownership! Here are some facts to help take the fear out of the process:

  • 71% of buyers who purchased homes have put down less than 20%.
  • 78.1% of loan applications were approved last month.
  • In September, the average credit score for approved loans was 737.

What FICO® Score Do You Need to Qualify for a Mortgage?

What FICO® Score Do You Need to Qualify for a Mortgage? | Simplifying The Market

It’s common knowledge that your FICO® score plays an important role in the homebuying process. However, many buyers have misconceptions regarding what exactly is required to get the loans they need.

While a recent announcement from CNBC shares that the average national FICO® score has reached an all-time high of 706, the good news for potential buyers is that you don’t need a score that high to qualify for a mortgage. Let’s unpack the credit score myth so you can to become a homeowner sooner than you may think.

With today’s low interest rates, many believe now is a great time to buy – and rightfully so! Fannie Mae recently noted that 58% of Americans surveyed say it is a good time to buy. Similarly, the Q3 2019 HOME Survey by the National Association of Realtors said 63% of people believe now is a good time to buy a home. Unfortunately, fear and misinformation often hold qualified and motivated buyers back from taking the leap into homeownership.

According to the same CNBC article,

“For the first time, the average national credit score has reached 706, according to FICO®, the developer of one of the most commonly used scores by lenders.”

This is great news, as it means Americans are improving their credit scores and building toward a stronger financial future, especially after the market tumbled during the previous decade. With today’s strong economy and increasing wages, many Americans have had the opportunity to improve their credit over the past few years, driving this national average up.

Since Americans with stronger credit are now entering the housing market, we are seeing an increase in the FICO® Score Distribution of Closed Loans (see graph below):What FICO® Score Do You Need to Qualify for a Mortgage? | Simplifying The MarketBut hang on – don’t forget that this does not mean you need a FICO® score over 700 to qualify for a mortgage. Here’s what Experian, the global leader in consumer and business credit reporting, says:

FHA Loan: “FHA loans are ideal for those who have less-than-perfect credit and may not be able to qualify for a conventional mortgage loan. The size of your required down payment for an FHA loan depends on the state of your credit score: If your credit score is between 500 and 579, you must put 10% down. If your credit score is 580 or above, you can put as little as 3.5% down (but you can put down more if you want to).”

Conventional Loan: “It’s possible to get approved for a conforming conventional loan with a credit score as low as 620, although some lenders may look for a score of 660 or better.”

USDA Loan: “While the USDA doesn’t have a set credit score requirement, most lenders offering USDA-guaranteed mortgages require a score of at least 640.”

VA Loan: “As with income levels, lenders set their own minimum credit requirements for VA loan borrowers. Lenders are likely to check credit scores as part of their screening process, and most will set a minimum score, or cutoff, that loan applicants must exceed to be considered.”

Bottom Line

As you can see, plenty of loans are granted to buyers with a FICO® score that is lower than the national average. If you’d like to understand the next steps to take when determining your credit score, let’s get together so you can learn more.

62% of Buyers Are Wrong About Down Payment Needs

62% of Buyers Are Wrong About Down Payment Needs | Simplifying The Market

Contrary to common misconception, a down payment is often much less than many believe.

According to the ‘2019 Home Buyer Report conducted by Nerdwallet, many first-time buyers still believe they need a 20% down payment to buy a home in today’s market:

“More than 6 in 10 (62%) Americans believe you must put at least 20% down in order to purchase a home.”

When potential homebuyers think they need a 20% down payment to enter the market, they also tend to think they’ll have to wait several years (in some markets) to come up with the necessary funds to buy their dream homes. The report continues to say,

“The truth: 32% of current U.S. homeowners put 5% or less down on their home, according to census data.” (as shown below):

62% of Buyers Are Wrong About Down Payment Needs | Simplifying The MarketThe lack of knowledge about the home-buying process is unfortunately keeping many motivated buyers on the sidelines.

Bottom Line

Don’t let a lack of understanding keep you and your family out of the housing market. Let’s get together to discuss your options today.

What Is the Cost of Waiting Until Next Year to Buy? [INFOGRAPHIC]

What Is the Cost of Waiting Until Next Year to Buy? [INFOGRAPHIC] | Simplifying The Market

What Is the Cost of Waiting Until Next Year to Buy? [INFOGRAPHIC] | Simplifying The Market

Some Highlights:

  • The “cost of waiting to buy” is defined as the additional funds necessary to buy a home if prices and interest rates were to increase over a period of time.
  • Freddie Mac forecasts interest rates will rise to 3.8% by Q4 2020.
  • CoreLogic predicts home prices will appreciate by 5.4% over the next 12 months.
  • If you’re ready and willing to buy your dream home, now is a great time to buy.