As a first-time homebuyer, you may be wondering how to save money on your mortgage. The best and smartest way to go is by getting pre-approved for a mortgage before you start looking at homes. If you get approved beforehand, it can save time because when selecting homes for purchase, the potential buyer will only need to see houses within their price range or loan limit. Below is more information about pre-approval and its advantages.
When you are first getting started with the loan application process, two steps need to be completed. The first step is pre-qualification. Pre-qualification is a rough estimation of how much money a lender is willing to give you based only on the data they have at hand. This includes your income, credit score, and debts or liabilities.
However, this information may not be complete or up to date. You can continue with the second step which is pre-approval. Pre-approval means that your lender has more access to your financial data and is willing to give you a final number on how much money they will lend you for the house purchase. This is based on the information you provide to the lender.
If you were already pre-qualified with a lender and had been looking at homes from a real estate agent, it is best to request a pre-approval. It can definitely help when you're purchasing a home.
Almost all lenders offer this service today, but it can vary depending on which company you choose. You also have the option of applying with a broker who may find a lender who offers pre-approval with lower interest rates and fees.
The very first step you need to take is to check your credit score. This can be done on a free website. If your credit score falls below the minimum threshold set by the lender, you will have to improve it before applying for a pre-approval.
If you are already meeting the floor price set by the lender, you may proceed to apply. Fill out all required paperwork honestly and completely if you want to improve your chances of being approved.
If you want to get pre-approval for a loan, you need to have decent credit. Many lenders will require a FICO score of 640 or higher before they can approve your request.
Also, to be considered for pre-approval, you'll need to prove that you can repay the loan that you apply for. This can include having a steady income or access to funds through another source. The lender may also ask about what your total debt is compared to how much you make monthly.
Pre-approval for a home loan can help you get the best rates, but it also requires more effort than simply applying for prequalification. You will have to prove that you are serious about purchasing by showing steady income and access to funds. This can be difficult for some people to prove, but your chances of being pre-approved increase dramatically if you do it right.
If you are looking forward to getting a loan preapproval or prequalification so that you can buy a home, reach out to us. We are a team of experienced realtors and we will give you professional advice from preapproval to moving into your new home.
Homeownership has many advantages. It's key to building wealth. That's why for most people, their home is their most valuable asset and represents the majority of their net worth. But owning a home comes with some maintenance costs.
Not only does a home cost a great deal to acquire, but it also costs quite a bit to maintain. Some estimates place the ongoing yearly costs of owning a home at around 5% of its value. For the average home in the US, that works out to over $13,000 per year. There is plenty of uncertainty built into that number. For example, having a major appliance break could add thousands of dollars to that total. And there's no way to know when an unexpected expense will overwhelm your budget.
That's where home warranties come into play.
Home warranties are a popular way for homeowners to try to contain the costs of homeownership and eliminate unexpected expenses. Here's an overview of what they are, how they work, and when they're worth investing in. Let's dive in.
Unlike insurance, it's a service contract designed to cover the cost of the repair or replacement of major household items. In most cases, they cover things like large kitchen appliances and the home's major systems. But home warranties aren't insurance. They only cover costs associated with the normal wear and tear of covered items. So, if, for example, your refrigerator got damaged due to flood – it wouldn't pay to replace it.
That is, in fact, the primary difference between home warranties and a homeowner's insurance policy. The former covers the costs associated with routine maintenance and care for a home's major systems, while a homeowner's insurance policy pays for unexpected damage to property in the home. It protects against losses connected to things like fires, floods, and theft. Together, the two provide comprehensive protection for both the routine and extraordinary costs associated with owning a home.
Although different providers offer warranty plans that cover various items in a home, there are some covered items most of them share. These include:
• Heating / Ductwork
• Hot water systems
• Central or split-unit air conditioning systems
• Ovens, ranges, and cooktops
• Garbage disposal units
• Garage door openers
Depending on the provider, it's often possible to add warranty coverage for other household items like:
• Well pumps
• Septic tanks
• Pool and spa equipment
In most cases, home warranties don't cover the structural components of a home. That means they don't cover things like walls, windows, foundations, and doors. They also won't cover solar panels because they're considered a structural item.
And home warranties also won't cover commercial appliances. That means they don't cover many high-end kitchen items from major brands like Sub-Zero and Thermador. And they also don't cover duplicate items by default. That means homes with a second kitchen would need to purchase additional coverage for all of the items in it – even if they're the same items in their primary kitchen.
But even covered items are subject to certain restrictions, such as a home warranty won't cover pre-existing damage to a covered item. Every item must go through a visual and operational examination before it's eligible for coverage. At that time, a representative of the warranty provider will check for obvious damage to each item and conduct a basic test to see that it's functioning normally.
Even then, most home warranties feature a 30-day waiting period before they go into effect. That way, the company can rule out most undetectable pre-existing problems with covered items. It is designed to prevent a homeowner from purchasing a policy to cover an appliance they know is about to fail.
There are also limits to what home warranties will pay to repair or to replace covered items. Some impose limits on a per-item basis. For example, a policy might specify a maximum of $1,000 for microwave or $3,000 for an HVAC system. Others set a maximum limit that applies to all covered items, which usually represents the maximum replacement cost of the most expensive covered item.
In most cases, home warranties are worth purchasing for anyone buying a secondhand home. This is because it's often impossible to know the true condition of a home's major systems or if they've been put through excessive wear and tear. And because purchasing a home is a significant investment, the last thing a new homeowner would want is a string of unexpected expenses right after they move in.
For the same reason, people selling their homes might purchase coverage to convince would-be buyers that everything in the house is in reasonable working order. Doing so serves as a guarantee to the home's new owners that they're not going to end up paying for the damage done by its previous owners. In that way, homeowners' warranties make an attractive addition to a home that's listed for sale.
The costs of a home warranty are reasonable enough that either party would be well-served by purchasing a policy. The average cost comes in at between $25 and $50 per month, which works out to between $300 and $600 per year. After that, the only other cost is a reasonable service call fee between $75 and $125 when something breaks. So, the first time that a major covered appliance needs replacing, the policy will more than pay for itself.
Buyers of newly-built homes typically don't need home warranty coverage. This is because most homebuilders offer similar coverage for at least a year after a home's completion, and it comes standard with the purchase of the home. Plus, new major appliances come with their own warranties that cover major problems for a year or more after purchase. It wouldn't make sense to purchase coverage until several years into the home's existence in those cases.
Any way you look at it, home warranties are a smart way to manage some of the ongoing costs of homeownership. But they're not for everyone, and anyone buying a policy should do their homework and read all of the fine print before buying coverage. Like insurance, a home warranty can seem costly when you don't end up using it – but it can be a lifesaver when bad luck strikes and multiple appliances break in quick succession.
Get in touch with us for professional help on your real estate investment journey, call 650 550 8646.
Speaking of getting your home on the market, home staging plays a key part to impress your potential buyers. It involves decluttering, rearranging, and remodeling your home. Keep in mind that homebuyers come from various walks of life, thus when staging your property ensure that it is eye-catching to everyone.
There are professional home stagers that you can hire and even experienced real estate agents can do some staging themselves. However, you can also choose to be hands-on and do it yourself. The infographic below will guide you through the home staging process:
The bottom line is that staging can increase your home's purchase offers, but you don't need to stage every room of the house. Focus your efforts on the most usable spaces of the home. Get professional advice from an established real estate group to discuss the best strategy for selling your home and prepare it for a successful open house. Call 650-550-8646 or send an e-mail to firstname.lastname@example.org.
Whether it’s an investment property, a place to move and build a family, or a space to grow old in, buying a home for the first time is a big step. It’s both a major financial and emotional decision.
A house is likely the most expensive purchase of your life, so it can be a bit overwhelming. It is totally understandable. To help you feel as prepared as possible and eliminate a lot of the stress, we’ve come up with these tips that should guide you through the home-buying process.
Do you have savings? Calculate your monthly expenses and debt-to-income (DTI) ratio, which should be at a maximum of 43%. It is essential to know where you stand in your finances to strengthen your credit score – this will determine if you qualify for a mortgage. Consider having an emergency fund for three to six months' worth of expenses. When you buy a home, there will be a down payment and closing costs.
Save enough money for a 20% down payment (or more). Your down payment will depend on the type of mortgage you choose and the lender’s terms. Some lenders allow as low as a 3% down payment for first-time homebuyers with excellent credit scores. Also, keep in mind that as a homeowner you will be responsible for all the maintenance and upkeep costs.
What does your dream house look like? Write down specific features and amenities that you need for your ideal home. You can also include the location, neighborhood, and size of the house and lot. You can make a separate list of the home features that are less important, that you can do without upon purchase. This is your first home; you deserve a house that grants most (if not all) of your wishes but be realistic.
Don’t worry about not being able to pay cash for a home because there are a variety of mortgages with varying down payment and eligibility requirements:
By the way, you also have options when it comes to how long you are going to pay a home loan, anywhere from 15- to 30-years.
A mortgage pre-approval determines how much house you can afford. Lenders will take into consideration your financial situation, including monthly income, DTI, and credit score. They will then provide you a statement that you are qualified to take a loan and how much a lender will give you to buy your first home. With a mortgage pre-approval, your home financing is already secured, and it shows the seller that you’re a serious buyer.
Your mortgage pre-approval will give you an idea of how much you can spend for your first home, which will help you narrow down your house requirements. Attend several open houses in the neighborhoods you want to live in to give you the chance to learn more about the area, its facilities, and community culture. Take advantage of home buying assistance programs from local government and realtors.
First of all, hire a trained professional to do an inspection of the property you’re interested in, so you’ll know the condition of your potential new home. This way, you can negotiate your offer with the seller, such as paying for the repairs. You can also ask them to lower the price to cover the cost of repairs. There are instances that the seller will pay some of the closing costs if the offer is right.
An excellent real estate agent knows the ins and outs of the market, finds you homes that match your criteria, and guides you through the entire process. Communicate with your agent regularly. Your home-buying journey will be a lot easier when you’re working with a real estate professional.
Don’t go over budget. As a first-time homebuyer, it is natural to get excited shopping for a perfect house that ticks everything in your checklist, forgetting what you can truly afford. Have enough money for repairs and renovations.
Remember to consider closing costs in your budget. These fees pay for important steps in the home-buying process, including:
Keep the physical copy of your mortgage statements, deed, Closing Disclosure, vendor and supplier receipts, property insurance policy, and other important real estate records. Compile them all together for easier access and lock them in a fireproof cabinet, if possible.
Now back to the first question, are you ready to buy a house? Tap a highly rated real estate agent nearest you; contact us today!
How long have you lived in your current home? If it’s been a while, you may be thinking about moving. According to the latest Profile of Home Buyers and Sellers by the National Association of Realtors (NAR), in 2019, homeowners were living in their homes for an average of 10 years. That’s a long time to be in one place, considering the average length of time homeowners used to stay put hovered closer to 6 years.
With today’s changing homebuyer needs, especially given how the current health crisis has altered our daily lifestyles, many homeowners are reconsidering where they’re at and thinking about moving to a home with more space for their families. Here’s why it might be a great time to make that happen.
The real estate market has changed in many ways over the past 10 years, and current homeowners are earning much more equity today than they used to have. According to CoreLogic, in the first quarter of 2020 alone, the average homeowner gained approximately $9,600 in equity. If you’re considering selling your house right now, you may have accumulated more equity to put toward a move than you realize.
Dialing back 10 years, many homeowners also locked in a fairly low mortgage rate. In 2010, the average rate was only 4.09%. This motivated homeowners to stay in their houses longer than usual to keep their rate low, rather than moving. Just last Thursday, however, average mortgage rates hit a new historic low at 2.86%. Sam Khater, Chief Economist at Freddie Mac explains:
“Mortgage rates have hit another record low due to a late summer slowdown in the economic recovery…These low rates have ignited robust purchase demand activity, which is up twenty-five percent from a year ago and has been growing at double digit rates for four consecutive months.”
Ten years ago, we couldn’t have imagined a mortgage rate under 3%. Looking at the math today, making a move into a new home and locking in a significantly lower rate than you have now could save you greatly on a monthly basis, and over the life of your loan (See chart below):As the example shows, you can save a substantial amount every month if you qualify for today’s low mortgage rate, and the savings can really add up over the life of a 30-year fixed-rate loan.
As a homeowner, you have a huge opportunity to move up right now. Whether you want to save more each month or get more home for your money based on your family’s changing needs, it’s a great time to connect to discuss the market in our area. Buyers are actively looking for more homes to buy, and you can win big by making a move if the time is right for you.
The year 2020 will be remembered as one of the most challenging times of our lives. A worldwide pandemic, a recession causing historic unemployment, and a level of social unrest perhaps never seen before have all changed the way we live. Only the real estate market seems to be unaffected, as a new forecast projects there may be more homes purchased this year than last year.
As we come to the end of this tumultuous year, we’re preparing for perhaps the most contentious presidential election of the century. Today, it’s important to look at the impact past presidential election years have had on the real estate market.
BTIG, a research and analysis company, looked at new home sales from 1963 through 2019 in their report titled One House, Two House, Red House, Blue House. They noted that in non-presidential years, there is a -9.8% decrease in November compared to October. This is the normal seasonality of the market, with a slowdown in activity that’s usually seen in fall and winter.
However, it also revealed that in presidential election years, the typical drop increases to -15%. The report explains why:
“This may indicate that potential homebuyers may become more cautious in the face of national election uncertainty.”
No. BTIG determined:
“This caution is temporary, and ultimately results in deferred sales, as the economy, jobs, interest rates and consumer confidence all have far more meaningful roles in the home purchase decision than a Presidential election result in the months that follow.”
In a separate study done by Meyers Research & Zonda, Ali Wolf, Chief Economist, agrees that those purchases are just delayed until after the election:
“History suggests that the slowdown is largely concentrated in the month of November. In fact, the year after a presidential election is the best of the four-year cycle. This suggests that demand for new housing is not lost because of election uncertainty, rather it gets pushed out to the following year.”
To some degree, but not in the overall number of home sales. As mentioned above, consumer confidence plays a significant role in a family’s desire to buy a home. How may consumer confidence impact the housing market post-election? The BTIG report covered that as well:
“A change in administration might benefit trailing blue county housing dynamics. The re-election of President Trump could continue to propel red county outperformance.”
Again, overall sales should not be impacted in a significant way.
If mortgage rates remain near all-time lows, the economy continues to recover, and unemployment continues to decrease, the real estate market should remain strong up to and past the election.
As remote work continues on for many businesses and Americans weigh the risks of being in densely populated areas, will more people start to move out of bigger cities? Spending extra time at home and dreaming of more indoor and outdoor space is certainly sparking some interest among homebuyers. Early data shows an initial trend in this direction of moving from urban to suburban communities, but the question is: will the trend continue?
According to recent data from Zillow, there is a current surge in urban high-end listings in some larger metro areas. The month-over-month increase in these homes going on the market indicates more urban homeowners may be ready to make a move out of the city, particularly at the upper end of the market (See graph below):
With the ongoing health crisis, it’s no surprise that many people are starting to consider this shift. A July survey from HomeLight notes the top reasons people are actually moving today:
More space, proximity to fewer people, and a desire to own at a more affordable price point are highly desirable features in this new era, so the list makes sense.
John Burns Consulting notes:
“The trend is accelerating faster than anyone could have predicted. The need for more space is driving suburban migration.”
In addition, Sheryl Palmer, CEO of Taylor Morrison, a home building company, indicates:
“Most recently, we’re really seeing a pickup in folks saying they want more rural or suburban locations. Initially, there was a lot of talk about that, but it’s really coming through our buyers today.”
The National Association of Home Builders (NAHB) also shares:
“New home demand is improving in lower density markets, including small metro areas, rural markets and large metro exurbs, as people seek out larger homes and anticipate more flexibility for telework in the years ahead. Flight to the suburbs is real.”
The question remains, will this interest in suburban and rural living continue? Some, like Lawrence Yun, Chief Economist at the National Association of Realtors (NAR) think the possibility is there, but it is still quite early to tell for sure. Yun notes:
“Homebuyers considering a move to the suburbs is a growing possibility after a decade of urban downtown revival…Greater work-from-home options and flexibility will likely remain beyond the virus and any forthcoming vaccine.”
While much of the energy behind this trend has largely been accelerated by the current health crisis, monitoring the momentum over time is critically important. Businesses are discovering new and innovative ways to function in remote environments, so the shift has the potential to stick. Much like the economic recovery, however, the long-term impact may hinge largely on the health situation throughout this country.
Early data is showing a shift from urban to suburban markets, but keeping an eye on this trend will help us understand how it will ultimately play out. It may just be a temporary swing in a new direction until Americans once again feel a sense of comfort in the cities they’ve grown to love.
Last Friday, the Bureau of Labor Statistics (BLS) released its latest jobs report. It revealed that the economic shutdown made necessary by COVID-19 caused the unemployment rate to jump to 14.7%. Many anticipate that next month the percentage could be even higher. These numbers represent the extreme hardship so many families are experiencing right now. That pain should not be understated.
However, the long-term toll the pandemic will cause should not be overstated either. There have been numerous headlines claiming the current disruption in the economy is akin to the Great Depression, and many of those articles are calling for total Armageddon. Some experts are stepping up to refute those claims.
In a Wall Street Journal (WSJ) article this past weekend, Josh Zumbrun, a national economics correspondent for the Journal explained:
“News stories often describe the coronavirus-induced global economic downturn as the worst since the Great Depression…the comparison does more to terrify than clarify.”
Zumbrun goes on to explain:
“From 1929 to 1933, the economy shrank for 43 consecutive months, according to contemporaneous estimates. Unemployment climbed to nearly 25% before slowly beginning its descent, but it remained above 10% for an entire decade...This time, many economists believe a rebound could begin this year or early next year.”
This was not a structural collapse of the economy, but instead a planned shutdown to help mitigate the virus. Once the virus is contained, the economy will immediately begin to recover. This is nothing like what happened in the 1930s. In the same WSJ article mentioned above, former Federal Reserve Chairman Ben Bernanke, who has done extensive research on the depression in the 1930s, explained:
“The breakdown of the financial system was a major reason for both the Great Depression and the 2007-09 recession.” He went on to say that today - “the banks are stronger and much better capitalized.”
The nation’s collective heart goes out to all. The BLS report, however, showed that ninety percent of the job losses are temporary. In addition, many are getting help surviving this pause in their employment status. During the Great Depression, there were no government-sponsored unemployment insurance or large government subsidies as there are this time.
Today, many families are receiving unemployment benefits and an additional $600 a week. The stimulus package is helping many companies weather the storm. Is there still pain? Of course. The assistance, however, is providing much relief until most can go back to work.
We should look at the current situation for what it is – a predetermined pause placed on the economy. The country will recover once the pandemic ends. Comparisons to any other downturn make little sense. Bernanke put it best:
“I don’t find comparing the current downturn with the Great Depression to be very helpful. The expected duration is much less, and the causes are very different.”
Over 10% of all residential homes are purchased by investors, and that number continues to rise. Who are these investors?
Many have speculated that the large institutional conglomerates such as Blackstone, American Homes 4 Rent, and Colony Starwood dominate investor purchases. However, a special report on investor home buying by CoreLogic, Don’t Call it a Comeback: Housing Investors Have Been Here for Years, shows this is not the case.
Ralph McLaughlin, CoreLogic’s Deputy Chief Economist and author of the report, explained his findings at the recent National Association of Real Estate Editors conference in Austin:
“Investor buying activity in the U.S. is at record highs. And our records go back confidently, about 20 years…
What’s going on and why? Well, it turns out, it’s not the big institutional guys that are leading the increase in home buying. It’s actually the smaller guys. It’s those that have bought between one and ten properties over this 20-year period, they’re the ones that are really leading the increase in investor home buying.”
Here is the breakdown of the percentage of purchasers by type of investor over the last six years according to the report:As the graph shows, the percentage of “Mom & Pop” investors is currently dominating the number of homes purchased by investors, as the percentage of homes purchased by both professional and institutional investors is falling.
Most houses purchased by an investor are bought by small investors looking to diversify their financial portfolio by adding a real estate component. If you are investing in real estate as either a landlord or someone who fixes-up and flips the house, let's chat about the ways you can build or liquidate your current portfolio of properties.