Categories
For Buyers

Make the Dream of Homeownership a Reality in 2020

In 1963, Martin Luther King, Jr. led and inspired a powerful movement with his famous “I Have a Dream” speech. Through his passion and determination, he sparked interest, ambition, and courage in his audience. Today, reflecting on his message encourages many of us to think about our own dreams, goals, beliefs, and aspirations. For many Americans, one of those common goals is owning a home: a piece of land, a roof over our heads, and a place where our families can grow and flourish.

If you’re dreaming of buying a home this year, the best way to start the process is to connect with a Real Estate professional to understand what goes into buying a home. Once you have that covered, then you can answer the questions below to make the best decision for you and your family.

1. How Can I Better Understand the Process, and How Much Can I Afford?

The process of buying a home is not one to enter into lightly. You need to decide on key things like how long you plan on living in an area, school districts you prefer, what kind of commute works for you, and how much you can afford to spend.

Keep in mind, before you start the process to purchase a home, you’ll also need to apply for a mortgage. Lenders will evaluate several factors connected to your financial track record, one of which is your credit history. They’ll want to see how well you’ve been able to minimize past debts, so make sure you’ve been paying your student loans, credit cards, and car loans on time. Most agents have loan officers they trust that they can refer you to.

According to ConsumerReports.org,

Financial planners recommend limiting the amount you spend on housing to 25 percent of your monthly budget.”

2. How Much Do I Need for a Down Payment?

In addition to knowing how much you can afford on a monthly mortgage payment, understanding how much you’ll need for a down payment is another critical step. Thankfully, there are many different options and resources in the market to potentially reduce the amount you may think you need to put down upfront.

If you’re concerned about saving for a down payment, start small and be consistent. A little bit each month goes a long way. Jumpstart your savings by automatically adding a portion of your monthly paycheck into a separate savings account or house fund. AmericaSaves.org says,

“Over time, these automatic deposits add up. For example, $50 a month accumulates to $600 a year and $3,000 after five years, plus interest that has compounded.”

Before you know it, you’ll have enough for a down payment if you’re disciplined and thoughtful about your process.

3. Saving Takes Time: Practice Living on a Budget

As tempting as it is to settle in each morning with a fancy cup of coffee from your favorite local shop, putting that daily spend toward your down payment will help accelerate your path to homeownership. It’s the little things that count, so start trying to live on a slightly tighter budget if you aren’t doing so already. A budget will allow you to save more for your down payment and help you pay down other debts to improve your credit score. A survey of Millennial spending shows,

“70 percent of would-be first-time homebuyers will cut spending on spa days, shopping and going to the movies in exchange for purchasing a home within the next year.”

While you don’t need to cut all of the fun out of your current lifestyle, making smarter choices and limiting your spending in areas where you can slim down will make a big difference.

Bottom Line

If homeownership is on your dream list this year, take a good look at what you can prioritize to help you get there. Let’s get together today to discuss the best steps you can take to start the process.

Categories
For Buyers Housing Market Updates

Housing Inventory Vanishing: What Is the Impact on You?

Housing Inventory Vanishing: What Is the Impact on You? | MyKCM

Housing inventory is key to the real estate market. Even though the market is expected to still perform very well, one challenge to the housing industry is the lack of homes available for sale. Last week, move.com released a report showing that 2020 is beginning with the lowest available housing inventory in two years. The report explains:

“Last month saw the largest year-over-year decline of housing inventory in almost three years with a dramatic 12 percent decline, pushing the number of homes for sale in the U.S. to the lowest level since January 2018.”

Housing Inventory Vanishing: What Is the Impact on You? | MyKCM

The report also revealed that the decline in inventory stretches across all price points, as shown in the following graph:George Ratiu, Senior Economists explains how this drop in available homes for sale comes at a time when more buyers are expected to enter the market:

“The market is struggling with a large housing undersupply just as 4.8 million millennials are reaching 30-years of age in 2020, a prime age for many to purchase their first home. The significant inventory drop…is a harbinger of the continuing imbalance expected to plague this year’s markets, as the number of homes for sale are poised to reach historically low levels.”

The question is: What does this mean to you?

If You’re a Buyer…

Be patient during your home search. It may take time to find a home you love. Once you do, however, be ready to move forward quickly. Get pre-approved for a mortgage, be ready to make a competitive offer from the start, and understand that a shortage in inventory could lead to the resurgence of bidding wars. Calculate just how far you’re willing to go to secure a home, if you truly love it.

If You’re a Seller…

Realize that, in some ways, you’re in the driver’s seat. When there is a shortage of an item at the same time there is a strong demand for that item, the seller of that item is in a good position to negotiate. Whether it is price, moving date, possible repairs, or anything else, you’ll be able to demand more from a potential purchaser at a time like this – especially if you have multiple interested buyers. Don’t be unreasonable, but understand you probably have the upper hand.

Bottom Line

The housing market will remain strong throughout 2020. Understand what that means to you, whether you’re buying, selling, or doing both.

Categories
For Sellers Housing Market Updates

There’s a Long Line of Buyers Waiting for Your House

If you’re following what’s happening in the housing market right now, you know that many people believe the winter months aren’t a good time to sell a home. As Senior Economist George Ratiu recently noted,

“Sellers tend to be more reluctant to list during the colder time of year when the market typically makes a seasonal slowdown.”

However, a recent report by ShowingTime reveals how this year is different. Buyer activity is way up compared to the same time last year. The report explains,

“The nation’s 12.6% growth in home showings compared to 2018 was the most significant jump in buyer traffic during the current four-month streak of year-over-year increases. The West Region saw the greatest growth in activity, with a 23.1% jump – the region’s greatest in the history of the Showing Index.”

There’s a Long Line of Buyers Waiting for Your House | MyKCM

The increase has spread across all four regions of the country, as the graph below shows:

Bottom Line

Waiting for the “spring buyers’ market” may be a mistake this year. It seems the purchasers are already out and looking to buy.

Categories
Housing Market Updates For Buyers For Sellers

The New Spring Real Estate Market is Here. Are You Ready?

Which month do you think most people who are considering buying a home actually start their search? If you’re like most of us, you probably think the surge happens in the spring, likely in April. Not anymore. According to new research, January 2019 was only 1% behind February for the most monthly views per listing.

So, what does that mean? The busiest season in real estate has just begun.

The same research indicates,

“Historically, April launched the kickoff of the home shopping season as buyers would come out of their winter hibernation looking for their new home. However, the spring shopping season now starts in January for many of the nation’s largest markets.”

With the reality of fewer homes on the market in the winter, and that supply naturally increases as we head to the spring market, waiting for more competition to list in your neighborhood this year might put you behind the curve. Perhaps now is the time to jump into the market.

George Ratiu, Senior Economist, says,

“As shoppers modify their strategies for navigating a housing market that has become more competitive due to rising prices and low inventory, the search for a home is beginning earlier and earlier.”

There is a lot of speculation in the market about why the search for a home is shifting to an earlier start. The one thing we do know is if you’re thinking about buying or selling a home this year, the earlier you get started, the better.

Reminder: When should you sell something? When there is less of that item for sale and the greatest number of buyers are in the market. That’s exactly what is happening in real estate right now.

Bottom Line

The new spring market for real estate is underway. If you’re considering buying or selling, let’s connect, so you have the advantage in this competitive market.

Categories
First Time Home Buyers Finance For Buyers Mortgage Tips & Advice

First-time Homebuyer – The Questions Answered

You can’t know everything there is to know about buying a home — especially when you’re a first time home buyer. However, you can do a little research and put yourself in a position to succeed and the good news, it all starts right here, keep on reading below!

The home buying process can be broken up into phases, making it a lot easier to approach.

The guide covers the very first phases: figuring out how much house you can afford, and how to finance the purchase. 

Other steps, like house hunting, can’t happen until you have those basic finance questions answered. 


Topics


What is a mortgage?

According to the National Association of REALTORS®, only about 10 percent of buyers purchase homes with all cash. Everyone else has to borrow at least some of the money to buy their new home. This is done with a special type of loan called a mortgage. 

So, what makes a mortgage different from other types of loans? 

  • Lower interest rates — under 4% annually, at the time of writing this article
  • Longer repayment periods — most people pay off their mortgage over 30 years
  • Rates and payments are generally fixed — most people “fix” their mortgage interest rate so that their monthly payment will stay the same over the whole loan period (unless they choose to refinance).
  • The loan is “secured” — mortgages are secured by the value in your home; if you fail to make payments, the mortgage company can take back (“foreclose”) your house to recoup its losses

In rare cases, you can use a mortgage to cover the whole purchase price of the home. 

But most people put some of their own money toward the purchase. The amount paid out of pocket is known as the “down payment.” The mortgage covers what’s left over. 

For example, if you bring $25,000 of your own money to a $250,000 home purchase, you have made a 10 percent down payment.  The remaining amount — $225,000 — is covered by your mortgage. 


How much down payment do I need for a house?

Many first time home buyers don’t know how much they need to put down on a home. Some believe it needs to be as much as 20%, but that’s far from true. In fact, the average down payment for first time home buyers is only 6 percent. On a $250,000 home purchase, that would be just $15,000.

How Much Do You Know About Down Payments? | MyKCM

There are loan programs that let you buy with even less than 6 percent down. For example: 

  • FHA loans — 3.5% down 
  • VA loans — 0% down 
  • USDA loans — 0% down 
  • Conventional 97 loans — 3% down 

Some of these programs have special requirements, and others are available to the general public (we’ll get into more specifics about loan programs below.) 

The main takeaway here is that down payments are flexible. Yours should depend on your income, what you currently have saved, how expensive the home is, and what your overall home buying goals are. 

Briefly, the pros and cons of bigger versus smaller down payments are: 

  • Bigger down payment = lower interest rate 
  • Bigger down payment = lower monthly payment
  • Smaller down payment = stop paying rent, buy a home sooner 
  • Smaller down payment = start building equity faster

So take a look at your own finances and home buying goals to figure out the right down payment for you.


What first time home buyer loans are available?

Home buyers today can choose among dozens of loan types, but more than 90 percent of buyers (including first time home buyers) will end up using one of four popular loan programs. These are: the conventional home loan, the FHA home loan, the VA home loan, and the USDA home loan.

These programs are popular because of their accessibility, low rates, and friendly terms. Each one has unique benefits, depending on what you’re looking for as a first time home buyer (lower down payment, lower credit threshold, lower-income options, etc.) 

Here’s a brief overview of each one. 

The conventional loan — 3% down for first-time homebuyers with better credit 

Conventional or “conforming” mortgage loans are what most home buyers think of when they think of home loans. The term “conforming” means that these loans meet guidelines established by two quasi-government entities — Fannie Mae and Freddie Mac.

Conforming mortgages are often the best choice for homebuyers with good credit scores and a down payment of at least 10 percent.

Conventional 97 mortgages offer no such discount but can be the most economical way to purchase a home with little money down (just 3%) — especially for buyers with extra-good credit.

The FHA loan — 3.5% down for first-time homebuyers with lower credit 

FHA loans are popular with borrowers who have smaller down payments and/or credit issues, which require extra underwriting flexibility. The biggest appeal of the FHA loan is that buyers with below-average credit can get a mortgage approved.

FHA loans allow buyers with credit scores as low as 580 with 3.5% down and 500 (with 10% down). However, low credit scores must not be the result of recent bad credit history.

FHA mortgage rates are often lower than conforming mortgage rates, but because all FHA loans require mortgage insurance premiums (MIP), the overall cost of an FHA loan is sometimes higher.

FHA mortgage insurance costs are as follows: 

  • Upfront Mortgage Insurance Premium (UFMIP) = 1.75% of the loan amount for recent FHA loans and refinances
  • Annual Mortgage Insurance Premium (MIP) = 0.85% of the loan amount most FHA loans and refinances

Note — FHA mortgage insurance usually lasts the life of the loan. But it can eventually be canceled with a refinance once you’ve built equity in the home. So FHA mortgage insurance is not always “forever.”

The VA loan — 0% down for first time home buyers with military ties

The VA loan is a great program, with benefits offered by no other loan. But you need to be associated with the military to be eligible.

Available to veterans and active members of the U.S. military, VA loans offer 100 percent financing, simplified loan approval standards, and access to the lowest mortgage rates available.

For the last two years, VA mortgage rates have consistently beat rates for all other common loan types. VA mortgage rates can be as much as 40 basis points (0.40 percent) lower than rates for a comparable conventional loan.

The USDA loan — 0% down for first time home buyers in rural areas

Available in rural areas and low-density suburbs, the USDA loan is another no-money-down mortgage you can use to finance a home.

The USDA loan offers lower mortgage rates, zero down payment, and cheaper mortgage insurance to borrowers with low to moderate income. 

The only catch? The home has to be in a designated “rural” area according to USDA standards. That usually means it has to be located in a city with a population of less than 20,000.

Compare first time home buyer programs

As you weigh your mortgage options, here’s an overview of the basic borrower requirements for conventional, FHA and VA loans.

Conventional loansFHA loansVA loans
Minimum down payment requirement3% of purchase price; at least 20% to avoid private mortgage insurance (PMI)3.5% of purchase price0%
Minimum credit score requirement620580 with 3.5% down; 500 with 10% downNo minimum
Upfront mortgage insurance feeNone (a monthly PMI fee applies with less than 20% down)1.75% of the loan amount upfront, plus a variable annual feeUpfront VA funding fee of 1.25% to 3.3% of the loan amount
Suitable forBorrowers with excellent or good creditBorrowers with high DTI or low credit scoresVeterans, military service members and spouses

How much house can I afford? 

Once you’ve decided which mortgage loan type works best for you, you’ll want to begin thinking about your monthly budget and how much home you can afford.

It’s up to you to figure this out. A bank can’t do it for you. So, first, determine your monthly budget and write that number down.

For this example, let’s say you’re aiming for a mortgage payment of $1,500 per month.

We’ll now work backward to determine your maximum home purchase price.

Calculate your monthly mortgage payment (PITI) 

Your mortgage payment is made up of four parts, collectively known as PITI — Principal + Interest, Taxes, and Insurance.

Principal + Interest is your basic mortgage payment. It’s based on your loan amount, interest rate, and your loan term (the number of years you have to repay it).

You’ll also need to budget for real estate taxes. As a homeowner, you’re responsible for paying an annual real estate tax to the local taxing authority. Taxes typically range from 1-2 percent of your home’s value annually.

Then, there’s homeowners insurance. Mortgage lenders require that you carry insurance for your home, which typically costs 0.25-0.50 percent of your home’s value annually.

So, assuming a home purchase price of $250,000 and a ten percent down payment, plan on setting aside $400 for taxes and insurance each month.

This leaves $1,100 to spend on principal + interest.

Find your mortgage rate and price range

Determining whether a home is “in budget” depends on your principal + interest payment. And your principal + interest payment depends on current mortgage rates.

Be aware that mortgage rates move up and down all day, every day. Over the course of weeks and months, rates can change by 50 basis points (0.50 percent) or more.

When you’re shopping for a home, especially over an extended time period, it’s important to observe mortgage rates and how they are trending.

Consider the above example, when you have budgeted $1,100 to spend on principal + interest each month.

  • With mortgage rates at 3.75 percent, the payment is $1,043. The home is in-budget.
  • With mortgage rates at 4.25 percent, the payment is $1,107. The home is out-of-budget.

This example shows why you should never shop for homes by “price range.” The same home is affordable when rates are low, and unaffordable when rates increase.

Adjust your target price range based on current mortgage rates. It’s the only true way to keep on budget.

Mortgage calculator for first-time home buyers

Powered by MORTGAGECALCULATOR.ORG The Best Mortgage Calculator, by far!


What credit score do I need as a first-time home buyer? 

Your credit score makes a big difference when you buy a house. It affects your loan options, mortgage, rate, and home buying budget. This can sometimes be a concern for first time home buyers who might not have “excellent” credit. 

For reference, credit scores are generally classified this way: 

  • 720+ = Excellent
  • 680 to 719 = Good
  • 620 to 679 = Fair
  • < 620 = Poor

Those with credit scores in the “excellent” range will usually have access to the most favorable loan programs and lowest rates. 

But those with fair to good credit scores have options, too. Here are the typical credit score requirements for the most popular first time home buyer programs: 

  • Conventional loan — 620+
  • FHA loan — 580+
  • VA loan — 620+
  • USDA loan — 640+ 

It becomes more difficult to find mortgage financing in the below-620 range. 

Technically FHA loans are available with a credit score as low as 500 — but only if you can make at least a 10% down payment. And it can be hard to find lenders that are actually so lenient. 

Similarly, VA loans have no credit score minimum by default. But most lenders impose their own minimum credit score of at least 620 for VA loans. 

Start checking your credit well before you plan to buy a house — at least a year in advance if possible.

This will give you time to flag errors on your report, solve them, and even work on raising your score if that’s necessary to get a loan. 

Remember: A higher credit score = a lower mortgage interest rate = a lower monthly payment OR a bigger home buying budget. 

Any way you slice it, it’s in your favor to have the best possible credit score when you try for financing. 


How to choose a mortgage lender as a first time home buyer

One of the biggest mistakes first time home buyers make is not shopping around for a mortgage. They might simply get a loan from the bank they already use for checking and savings. Or they might get a quote and go with the first lender they speak to, assuming rates and prices are the same everywhere. 

In fact, that’s not true. Lenders have a lot of flexibility with the rates they offer. For a single borrower, mortgage rates could potentially vary as much as 0.5% from one company to another. 

0.5% might sound small. But over the first three years of a $250,000 loan, that difference would save you almost $4,000. 

So, make sure you get estimates from a few different lenders to find the best rate and fees before you commit to a home loan. 

What’s the best mortgage lender for first time home buyers? 

Most mortgage companies offer low-down-payment and flexible credit loans popular with first time home buyers. The right choice comes down to deciding what loan type you need, and comparing offers for that type of loan from a few different companies. 

We recommend checking rates and fees from at least three lenders to be sure you’re getting the best deal.

https://www.bankrate.com/mortgage.aspx?


First time home buyer FAQ

What is available for first time home buyers?

As a first time home buyer (or repeat buyer), the homes available to you depend on how much mortgage you qualify for. First time home buyers can use any of the mortgage programs available, provided they’re financially eligible. That includes conventional loans, FHA loans, USDA loans, and VA loans. First-time buyers might also have access to special loans, grants, and homebuyer courses that offer savings on down payments and closing costs. 

The availability of these programs depends on where you live, and there may be special requirements to qualify.  You will learn more about first time home buyer assistance programs here.

What credit score do you need to buy a house for the first time?

Most loan programs require a credit score of 620 or higher to buy a house for the first time. That includes conventional loans, most VA loans, and USDA loans (which require 640+). For those with lower credit, it may be possible to get an FHA loan with a score as low as 500, and a 10% down payment. But not all FHA lenders allow scores that low, so shop around. 

As a general piece of advice, a higher credit score gets you a lower mortgage rate and a bigger home buying budget. Credit scores in the “excellent” range (720+) have access to pretty much any loan program and better rates. So if it’s at all possible to improve your credit score before you apply for a mortgage and buy a home, it’s worth it to do so. See tips to improve your FICO score here. (coming soon)

What qualifies you as a first time buyer?

If you’re buying your first-ever home, you’re a “first-time home buyer” by default. But a repeat buyer can also qualify as a first-time home buyer, as long as they have not owned a home in the past three years. The three-year mark can help previous home buyers who have come on hard times get back into a home, with access to first-time buyer programs — like the Conventional 97 loan with 3% down — and some down payment assistance grants that are geared toward first-time buyers.

What is the maximum income to qualify for first time home buyers?

Many popular first time home buyer programs have no income limit. For example, buyers can qualify for an FHA loan with 3.5% down, or a VA loan with zero down, at any income level. But some first-time homebuyer programs do impose maximum income caps. To qualify for a zero-down USDA loan, your income can’t exceed 15% above the local median. Similarly, many down payment assistance grants set caps based on the local median income.

How do I get a first-time home buyer grant?

To get a first time home buyer grant, you’ll have to look into local programs. These grants are typically offered by state and local governments and nonprofits, so they vary by area. To qualify, you generally need to be a first-time homebuyer with low-to-moderate income. And you need to make sure the mortgage program you’re applying for allows you to use the funds toward your down payment and/or closing costs. You can start by finding first time home buyer grants here:

Florida Down Payment Assistance Programs

The Florida Housing Finance Corporation (FHFC) has three DPA programs:

  1. 3-percent HFA Preferred Grant — Those who are eligible may get 3 percent of the home’s purchase price in the form of a non-repayable grant
  2. Florida Assist — You may be able to get up to $7,500 as an interest-free second mortgage. You don’t have to make payments on this, because it typically falls due only when you sell or refinance the home
  3. Hardest Hit Fund DPA — This is available only to residents of certain counties. It lends up to $15,000 interest-free for five years. But, each year, 20 percent of the loan is forgiven. So you pay nothing, providing you stay in the home that long

Discover more at FHFC’s website. And check HUD’s list of alternative programs for Florida.

How do I know if I’m ready to buy a house?

If you want to know whether you’re ready to buy a house, ask yourself four questions1) Do I have a steady job and reliable income?; 2) Do I have enough money saved for the down payment AND closing costs?; 3) Is my credit history reasonably strong?; 4) Do I plan to stay in the home for at least five years? There’s a lot more to each of these questions, of course, but the answers should give you a general feel for your home buying readiness.

Want to know if you’re ready to buy a home? Click here to receive our FREE home buying checklist today! Plus, we’ll send you our weekly newsletters featuring the latest rates, news, offers, and more!

What are the benefits of being a first time home buyer

First-time homebuyers sometimes have access to special loan programs and home buying grants that other buyers don’t. However, these types of programs are often geared toward first time home buyers who need a little extra help; for instance, lower-income home buyers or those with poor credit. If you have great credit and make a lot of money, the benefits of being a first time home buyer might not apply to you — but then again, you might not need them. How can I buy a house with no money down? 

There are two big loan programs that let you buy a house with no money down: the VA loan and the USDA loan. To qualify for a zero-down VA mortgage, you need to be a veteran or service member. For a USDA loan, you need to buy a house in a qualified “rural” area, and meet local income caps. For people who don’t qualify for these programs, it’s possible to buy a house with no money down by using gift funds or applying for down payment assistance. Are there any fees when a home buyer works with a real estate agent?

No, real estate agents are “free” for home buyers; the seller typically pays their commission. Furthermore, because of conflicts of interest, there are almost no situations in which it makes sense for a home buyer to employ the same real estate agent as the home seller.What is Private Mortgage Insurance (PMI)?

Private Mortgage Insurance (PMI) is an insurance policy that makes homeownership possible for homebuyers who don’t want to make a twenty percent down payment. You, the borrower, pay PMI premiums to protect your mortgage lender from default and foreclosure.

Should you fail to repay your mortgage, the lender can “cash in” the homeowner’s PMI policy to recover its lost money. Conforming mortgage lenders require PMI when the home buyer makes a down payment of less than 20 percent.

PMI later self-cancels when the balance drops to 78 percent of the initial sales price. You can also apply with your servicer to remove it once the loan balance drops to 80 percent. (You may have to pay for an appraisal or refinance altogether to get this benefit).What are points? How do I know if I should buy them or not?

A point is simply 1 percent of the loan amount. If you choose to “buy your rate down,” or pay “discount points,” you will get a lower interest rate.

All else being equal, the more you pay upfront, the lower your interest rate and the monthly payment will be. But buying points might not pay off unless you keep your mortgage long enough to recoup your upfront costs with your monthly savings.

Deciding whether to pay points is a personal decision. Homebuyers with plans to sell or refinance within a few years should usually not pay discount points. For a 30-year fixed-rate mortgage, one discount point should reduce the rate by 0.125 to 0.25 percent.

For many homebuyers, discount points are 100 percent tax-deductible in the year in which they are paid.

Check your status

Call your lender today, it could be a reputable lender you know, your bank or your local credit union.

Feel free to reach out to us at any time if you need help! You can:

  • Leave us a note here.
  • Contact us via any of our social media channels at the bottom of the page.
  • A phone call or a text message at (305) 606-4026 is always promptly answered at any time.

If you think someone else could benefit from this article as well, please remember that success without sharing is no success! Share this article, you will find your favorite social media network in the buttons below. Thank you for stopping by and, stay tuned.