When you apply for a home loan, the mortgage lender will conduct a thorough review of your income situation. Income is one of the most important factors to a lender, along with your credit score and debt level. This article answers a common, income-related question that home buyers often ask: How much income is needed to qualify for a mortgage loan?
The first thing to know is that mortgage lending standards and requirements can vary from one lender to the next. For example, if I approach a handful of lenders about a certain home loan, and my income level is on the “border” of acceptability, one company might approve me for the loan while others turn me down. That’s because they have their own business models and assessment procedures.
In addition, your household income level is only one piece of the mortgage qualification process. Lenders will review other things as well, including your credit score and your total amount of debt. Remember, your debt takes away a big part of your income — so the two things are usually reviewed together.
How Much Income to Qualify?
These days, most lenders set the bar somewhere around 43% to 45% for the total debt-to-income ratio, or DTI. This means that if your recurring monthly debts use up more than 45% of your monthly income, you might have trouble qualifying for a loan. On the other hand, a borrower who only uses about 35% of her income to cover the monthly debts should be in good shape, as far as lenders are concerned.
These numbers are not set in stone. Some lenders may allow total DTI ratios above 45%, especially when there are certain “compensating factors.”
According to the Consumer Financial Protection Bureau (CFPB):
“Larger lenders may still make a mortgage loan if your debt-to-income ratio is more than 43 percent … But they will have to make a reasonable, good-faith effort, following the CFPB’s rules, to determine that you have the ability to repay the loan.”
So, where do you stand? What’s your total debt-to-income ratio? You can find plenty of calculators online to help you calculate your DTI level. That’s a good place to continue your research.
Applying for a Mortgage Quote
When you’ve done the necessary research, and feel that you’re ready to take on a mortgage loan, the next logical step is to apply for quotes from lenders. The good news is that this process is easier than ever, thanks to the internet. You can apply online and get information sent to you by email.
Granted, you’ll have to fill out a more complete application at some point, along with plenty of supporting documents (tax records, bank statements, etc.). But the initial online application is a good way to get the ball rolling.
Don’t Overstretch Your Income
The last point I want to make is that a mortgage lender cannot tell you what you can afford. They can only tell you what they are willing to lend you, in terms of a loan. You must determine your own affordability limits, before you even start talking to lenders.
Doing some basic budget math up front could help you avoid financial issues down the road. So take a good, hard look at your current debt and income situation — and decide what you’re comfortable paying each month in the form of a mortgage payment.
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A recent report showed that homes across the U.S. sold faster than ever during 2017. And experts believe that 2018 could be an even hotter real estate market, due to a chronically low level of homes for sale. So buyers should be prepared for competition.
A Fast-Moving Real Estate Market in 2018
Here’s the big message for home buyers and house hunters in 2018: Be prepared to move quickly when you find a house you want to buy. Nationwide, homes sold at their fastest pace on record last year. And this year could match, or even outpace, that record.
According to a recent report from the real estate information company Zillow, it took a median of 81 days to sell a home in 2017. That was nine days faster than the previous year. The fastest-selling month for houses was June of 2017, when it took about 73 days for a home to sell (including the actual closing process). Since it can take between four and six weeks to close a sale, this means the typical home was on the market for around 30 days, before going under contract.
Buyers Still Dealing With Limited Inventory
So here we are in spring 2018, and housing markets across the country are still red-hot. This is largely due to the dearth of inventory seen in many areas. Home buyers in 2018 are facing limited inventory this home-shopping season, which has been the case for the last three years.
According to the latest figures, housing market inventory across the country has declined on a year-over-year basis for 37 months in a row. This leaves fewer options for home buyers, while boosting competition and prices. In 2017, nearly a quarter of all homes sold across the U.S. went for more than the list price. This shows that stiff competition could be leading to bidding wars and driving prices higher.
According to Aaron Terrazas, senior economist at Zillow, 2018 will be marked by fast home sales.
“As demand has outpaced supply in the housing market over the past three years, buying a home has become an exercise in speed and agility,” Terrazas said in a recent news release. “This [year] is shaping up to be another competitive home shopping season for buyers, who may have to linger on the market until they find the right home but then sprint across the finish line once they do.”
Tips for Buying in a ‘Fast’ Market
Fortunately, there are some things you can do to make the house-hunting process more efficient, and to make your offer stand out. Here are five tips for buying in a competitive market:
The fastest-selling real estate markets of 2017 were mostly located in California and the Pacific Northwest, where inventory is most constrained.
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The mortgage lending process can be somewhat intimidating, especially for first-time home buyers who’ve never been through it before. There’s so much money on the line, and so many steps along the way.
Below, we have assembled a “top-seven” list of mortgage tips for home buyers. Once you finish reading this list, you’ll have a much better understanding of how it all works.
1. Study the mortgage types.
Each type of mortgage loan comes with its own set of pros and cons. Some products are ideal for certain types of buyers, but disadvantageous for others. To decide which type of loan is right for you, you’ll need to know the pluses and minuses of each type. Start by learning the pros and cons of (A) conventional versus government-backed loans, and (B) adjustable-rate versus fixed-rate loans. These are your two biggest choices.
2. Consider your staying time.
How long do you plan to stay in the home? This will often determine which type of home loan is best for you. For instance, an adjustable-rate mortgage (ARM) could lower your interest rate up front, when compared to a fixed-rate mortgage. But if you stay in the home beyond the ARM loan’s introductory period, you’ll face the uncertainty of interest rate adjustments. The 30-year fixed-rate mortgage is the most popular type of loan these days.
3. Consider all types of lenders.
Many first-time home buyers don’t realize they can find mortgage financing locally, at local banks and credit unions. It’s true. So when shopping around for a lender and a loan program, be sure to look beyond the “big banks.” Don’t limit yourself. Keep your options open. If you have an existing relationship with a bank or credit union, ask them if they offer home loans.
4. Shop for the best rate.
Mortgage lenders will offer interest rates based on your credit history and credit score. When your credit is good, lenders might offer you a lower rate. When your credit is bad, the opposite can be true. Each lender defines their comfort level differently, so interest rates may vary from one company to the next. This is why it’s so important to get offers from multiple lenders.
5. Consider paying points.
One “point” is equal to one percent of the loan amount. (On a mortgage loan for $200,000, a single point would equal $2,000.) Some home buyers pay points at closing in order to lower their interest rate over the life of the loan. It’s a tradeoff. You can pay more upfront, and out of pocket, to lower your total interests costs over time. This can be a wise strategy over the long term, but it might not work out well for a shorter stay. Ask your lender to show you pricing strategies both with and without points being paid.
6. Don’t go it alone.
Most of us have friends or family members who own homes. These are good sources of information. Somebody who has been through the process and seen mortgage loans from “all sides” can often provide great information. You should also enlist the support of your real estate agent. A real estate agent is not a mortgage advisor, but most are well-informed about the mortgage process.
7. Factor in PMI.
PMI stands for private mortgage insurance. If your down payment on a house is less than 20%, your lender might require that you pay PMI. This will increase the size of your monthly payments. If you can afford to put 20% down, you’ll avoid having to pay PMI. It’s possible to get a mortgage loan with a down payment below 20%, but you’ll probably end up paying mortgage insurance of some kind — either private or government. When you get mortgage estimates from lenders, any required mortgage insurance should be included in the quote. But ask about it anyway, just to be sure.
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Seller’s market conditions persist in cities across the country, as inventory continues to fall short of demand. Under these kinds of conditions, sellers typically enjoy competing offers from buyers.
But that doesn’t mean sellers should skimp on the home staging. By staging your house for buyers, you can increase the chance for a quick sale and a full-price offer. And those are good things!
What Is Home Staging?
Home staging is when you take proactive steps to make your house more appealing to the majority of buyers. “Majority” is the key word here. Some people will dislike a certain property no matter what kind of staging is done. Taste is subjective, after all. But there are certain steps you can take to make your property appeal to the majority of potential buyers. And that’s precisely what home staging is all about.
The staging process can include such things as:
* Landscaping the yard, when applicable
* Painting the inside and/or outside of the house
* Replacing outdated fixtures with modern ones
* Arranging, adding, or removing furniture to maximize space
* De-cluttering the entire house
* Cleaning the house thoroughly from top to bottom
In some cases, these kinds of actions might be unnecessary or even cost-prohibitive. For example, a new or recently updated home with modern fixtures won’t require any new knobs, sink handles, or light fixtures. But an older home with outdated fixtures might need extra attention (unless the fixtures are antiques that add charm).
What’s the Point?
Now you know what home staging is, and what it involves. But what’s the point? What can you get out of it, as a home seller?
As a seller, your mission is to sell your house as quickly as possible, and for the best possible price. Staging can help you achieve these goals, and in several ways. It creates aesthetic value, which helps to support your asking price. It presents your home in the best possible light, which will make buyers more inclined to make an offer.
Above all, effective home staging helps you set your house apart from others that are listed for sale in the area. This is especially important in a crowded market with many similar properties for sale.
When buyers look at a well-staged home, they tend to say things like:
This is the kind of mindset that can lead to an offer.
Home staging allows you to create a favorable impression in the mind of potential buyers. And these kinds of impressions tend to “accumulate” as the buyer moves through the home. So if you stack enough of them in your favor, you’ll have a much better chance of landing a strong offer. And that’s your primary goal as a seller.
If you are interested in buying or selling your home, contact me!
Home buyers who are planning to enter the real estate market can benefit from having their financing arranged ahead of time. What does that mean exactly, and why is it so important in the current real estate market? Here’s what you need to know.
Many real estate markets across the country are highly competitive right now due to a lack of supply. There are plenty of people in the market looking to buy a home, but there’s not enough inventory to go around. This supply and demand imbalance puts upward pressure on home prices and makes things more competitive for buyers.
Mike Fratantoni, chief economist for the Mortgage Bankers Association, recently cited this as one of the primary factors influencing the market right now. “The major constraint in the market right now is the lack of supply,” Fratantoni told CNBC. “The absolute number of units on the market is near an all-time record low.”
Competing in a Tight Real Estate Market
In a competitive real estate market, home buyers want to have every possible advantage going for them. Among other things, home buyers can benefit from having their financing lined up ahead of time, before they even start looking at houses.
This might mean one of two things, depending on your money situation:
Benefits of Mortgage Pre-Approval
Mortgage pre-approval is basically a kind of financial pre-screening process. This is where a bank or mortgage company reviews your current financial situation to determine (A) if you’re a good candidate for a home loan, and (B) how much you can borrow. This helps you, the buyer, in two ways:
Both of these things could give you a much-needed advantage in the marketplace. This is especially important in an active real estate market where homes are selling quickly, and where multiple offers are a common occurrence.
The current inventory situation across the country also underscores the importance of having professional help from an experienced real estate agent. An agent can help you find a property that meets your needs, evaluate the seller’s asking price, and make a strong offer in a timely fashion. This is the key to success in a competitive real estate market.
Are you ready to start the search for your new home? Contact me and let me help you!
Home inspections are a common source of confusion for first-time home buyers, because there are several different types of inspections that can take place. Here is an overview of the most common types of inspections you could encounter during the buying process.
Primary Home Inspection
When you hear people talk about a “home inspection,” they are generally referring to the primary inspection that is conducted by a licensed home inspector. It’s always a good idea to have a property professionally inspected before buying it.
The inspector will examine the home’s foundation, roof, electrical system, installed appliances, heating and cooling systems, and overall condition. When he’s finished, he will give you a detailed inspection report that explains his findings.
Keep in mind that when you buy a house, you are generally buying it in “as-is” condition (unless specific provisions are added to the contract saying otherwise). For this reason, you want to make sure you know what is, and is not, working in the home. You’ll also want to know what repairs might be needed, and how much they might cost. For all of these reasons, the primary home inspection is essential.
Home inspectors typically don’t look for termites or other wood-destroying insects. So this is usually a separate inspection. This inspection is done on behalf of the buyer and the mortgage company. You might even have to provide a copy of the inspection for your mortgage lender. This is especially true if you live in an area where termites are common. You might be able to skip this process if termites are not commonly found in your area. Termite damage can be extensive and expensive. So these inspections are usually worth the cost.
Well Water Inspections
Depending on where the home is located, you may also need a well water test to make sure the water is potable (safe to drink).
Home Appraisal / Appraiser’s Inspection
If you are using a mortgage loan to buy a house, your bank or lender will send a licensed home appraiser out to evaluate the property. The appraiser is primarily concerned with the market value of the home. He will also examine the overall condition of the property, as it relates to the value.
Final Walk-Through Inspection
Home buyers typically perform one last inspection near the end of the real estate transaction, just to make sure the house is in the same condition it was in when they agreed to buy it. During this final “walk-through,” as it is known, you’ll want to ensure that everything is in working order, and that the house has not been damaged in any way since you first signed the contract.
As each inspection takes place, keep in mind that no home is perfect. You’ll need to weigh the pros and cons of every house in order to make the right purchasing decision.
You can expect a number of inspections to take place during your home buying process. Most of these inspections are for your benefit, as the home buyer, so you need to take each inspection seriously and consider the outcome carefully.
Do you plan to sell a home in 2018? If so, it’s time to start thinking about your asking price. Better yet, you could work with an experienced real estate agent to determine your list price. It’s one of our specialties. In this article, we’ll look at the reasons why it’s so important to price a home effectively, in order to get a quick sale.
Pricing Your Home to Sell Quickly
When selling a home, you can set the initial asking price in one of three ways. You can price it to sell quickly, eventually, or not at all. The first option is the one that appeals to most sellers, for obvious reasons.
The primary goal when selling a home is (A) to get the highest possible price, and (B) to sell within the shortest time possible. So let’s talk about how you would price a home to sell it more quickly.
When selling a home, it can be helpful to change your mindset from “owner” to “seller.” In reality, you’re both of these things. You’re the person who owns the home, and you’re also the one who is selling it. But you’ll want to think more like a salesperson than a homeowner, especially when it comes to pricing your home for the market.
Here’s a short maxim to help you adopt a salesperson’s mindset: “It’s not personal. It’s business.” You can repeat this little mantra when determining your asking price, and when negotiating with buyers. The personal and emotional connection you have to your home does not translate into market value.
Depending on when you first purchased your home, there’s a good chance it has risen in value. That’s because home prices across the country have generally risen over the last few years — and they continue to do so in most cities. So you’ll want to have the property evaluated by a real estate agent prior to setting your price. Your agent will review recent home sales in the area and other relevant data to figure out what your house might be worth in the current market.
The Market Determines Value
And speaking of the market, that is what determines how much your home is worth. The primary market forces of supply and demand dictate how much a seller can charge for an asset (in this case, a house). So it’s important to analyze the broader real estate market — and not just the house itself — when deciding on your initial asking price. This is another area where an experienced agent can guide you.
Setting the list price too high is a common mistake among sellers, particularly those who go it alone without an agent’s help. We live in the Information Age. Thanks to the internet, home buyers are more price-savvy than ever before. Most buyers conduct a lot of research before entering the real estate market. So it’s important that you establish a realistic asking price based on (A) recent sales activity and (B) the unique features of your home.
Pricing is one of the “Three P’s” of a solid home-selling strategy. The other two P’s are preparation and promotion. If you want to sell a house quickly and for top dollar, you must prepare it for the market, price it wisely, and promote it widely.
Have questions? Please contact me if you have questions about selling your home, or if you’d like a market analysis to help determine a good price. This is one of my specialties. I can help you avoid common pitfalls and support your price with current sales data.
If you haven’t bought a home yet, you’re missing out on a wonderful feeling! That moment when you walk through your doors, throw your purse or keys on the floor, plop down on your couch and breathe a sigh of relief while thinking, “Finally, it’s ours (or mine)!” And the joy of looking at all of your boxes, getting to roll your eyes about why you buy so much stuff, then giving yourself a moment to take a nap because you worked hard to get here and earned it! Yes that’s a real feeling!
We often hear, and read, about the cost effectiveness of home ownership. The equity build-up, the freedom it can give us from finances in our retirement years, and a plethora of other ways owning a home can be a positive impact on your bottom dollar. But we don’t often hear about the emotional impact owning a home can have. Yes there will be days the fridge is acting silly and you need to call your home warranty, or days you have to get outside to mow your own yard, but nothing beats the pride and joy of owning a home.
There is a sense of security, and a sense of “this is mine and I worked my way up to this moment,” that provides moments of bliss. The ability to do with your home as you please, not pay a pretty penny for every member of your fur family, and the privacy it provides can’t be beat.
Home ownership also gives you the ability to put down some roots. And we mean that figuratively and literally. You get to build memories through the holidays and go through many milestones with your family, that leave a significant impact into the later years. You also get to build bonds with your neighbors, and grow in a community oriented neighborhood. With rentals, people come and go annually, but there are deeper roots planted with building relationships with those living next to you. Potlucks, 4th of July and New Year’s Eve spent lighting fireworks, and just the excitement of getting to know each other and build new relationships.
Buying a home isn’t about the dollars and cents for everyone, sometimes it’s just about the joy of owning your own place, and getting to build amazing memories in it. If you’ve been longing for this, get in touch with a real estate agent, and make it happen. You owe it to yourself to make your dreams come true!
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With the influx of new technology and web based solutions, it isn’t a surprise that everything is moving fast into the era of the internet. From sites like Uber to Grubhub, we generally can pull up our phones or laptops to order what we want with ease. And with every industry being revolutionized by technology, the same methods are “attempting” to be applied to the real estate industry.
We could all agree that the simplification of the process through paperwork would be much appreciated by agents and buyers/sellers alike; but the attempt of replacing the agent by sites like Zillow and other third party resources, can lead to a snowball affect of disaster. Think about real estate being smack dab in the middle of fast food and a doctor. You can use your mobile device to quickly place your order for a $20 meal, but when it comes to getting a surgery, you’ll want to put that phone down and visit a professional. Now think of your real estate agent being in the middle of all of that. You can use your devices to look for a home, look at market data the way you look at WebMD, knowing not to take it too seriously because you need a real professional’s input, but it’s fun and gives you a general idea of what to expect. But there in lies the issue, the data online is an oversimplified version of what goes into the process of buying and selling. The same way it oversimplifies medical diseases and surgeries, you’d still expect to get a professional’s diagnosis.
Although a real estate agent isn’t quite like a doctor, the industry in it’s legalities, contracts, and processes is similar in the sense that it needs to be taken seriously. Looking for a house online and wanting to put an immediate offer on one can be exciting and fun, but the issues that require a professional’s guidance comes after the initial contract is written up and the hard work comes into place to actually make the home your own. Same for sellers, if you decide to put your home on the market and want a website that will give you an automatic offer, how do you know you’re not being taken advantage of in the price? But most importantly, how do you know you’re not being taken advantage of in other aspects of the contract? Because there is a lot more to the sale of the home then just agreeing on a number.
The next time you’re digging through public sites for homes for sale, and getting instant home valuation estimates, keep in mind that this is a simple process to give you an idea of your market. A very general idea. But after you’ve found the perfect house, or after you’ve decided that the numbers make some sense for you to sell, call your favorite real estate agent and make sure they give you a more detailed look into the market and assist you through the full process, not just the exciting first parts. Because it’s going to be in the middle of a contract when the lending is falling apart, or negotiations can’t be made on repairs and emotions are at an all time high, that you are going to wish you had put down your laptop and had an agent fighting for you by your side. Use the internet, have fun with it’s amazing resources, but don’t let it replace your agent. We aren’t in an age, just yet, where technology can do everything a professional can.
The real estate market is constantly changing, so of course DO YOUR RESEARCH! DO NOT jump the gun on this one! Unbiased advice from family and peers may be kind, but you are the only one who knows what your needs are when it comes to buying a home.
WHAT MADE YOU CONSIDER OWNING A HOME?
Forget finances for a minute and focus on what made you consider even buying a home in the first place!
· Is your family expanding?
· Does your family feel safe?
· Is there a STELLAR school system in the area so your children can get the education they deserve?
· How about that unbearable landlord?
WHICH WAY IS THE REAL ESTATE MARKET GOING?
DON’T SLEEP ON YOUR DECISION TOO LONG! Home prices are on the rise! Not only are they on their way back up, but these increases are happening monthly.
Don’t believe us? According to Existing Homes Sales Report from the National Association of Realtors (NAR), the average price of homes in May 2017 went up 5.8% from last year.
If you wait until next year to buy, you might be scrapping for change in the cushions to say the least! Not only will it cost you more to buy, but you will also need to increase your down payment to account for the higher price of the home.
WHAT IS THE MORTGAGE FORECAST?
The initial process of purchasing your home may seem easy and quick, but THERE IS MORE TOO IT! The ‘long term cost’ of buying a home WILL haunt you if you buy at the wrong time! Mortgage Bankers Association (MBA), and NAR have projected that mortgage interest rates will DEFINITLEY increase over the next twelve months. The smallest increase in mortgage rates can have a huge impact on a home owner.
If you and your family feel it is the right time to buy a home then GO FOR IT! Consider these points when making the final decision.
Don’t forget, this move is FOR YOU!
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