Category Archives: Buyer Information

Comparing Interest Rates…Check the APR

Most buyers are shopping for the best mortgage loan rate. However, many don’t think to add the “closing costs” expense into the total cost of the loan.

When applying for a mortgage, you may not pay the advertised rate. The best rates are for those homebuyers with the best credit scores. However, lenders are competitive, so you’d be wise to compare the rates and closing costs of several lenders.  You’ll receive a loan estimate that you can compare side-by-side.

Compare the Interest Rate
There are many factors that affect interest rates, including the economy, inflation, and the Federal Reserve’s overnight borrowing rates for banks. You can’t control these things, but you can influence the factors influence your credit score.

If you have a credit score of 740 or higher, the risk of default is low enough that you will likely receive the lender’s best rate. A credit score of 620 or lower will give you fewer loan options and the highest rates. Lenders also look for a loan-to-value – code for how much money you’ll put down as a down payment. The more you put down the better the ratio.

What you’ll actually pay
The true rate you’ll pay is the annual percentage rate (APR). The APR is your mortgage interest rate plus closing costs that have been rolled into the loan.  These include loan origination fees, property appraisal, flood certification, credit reports, and other charges associated with getting a loan. You’ll be able to find these numbers under the “comparisons” section of your loan estimates.

There is no fixed amount for closing fees and they will vary from one lender to another. Basically, a low interest rate with higher closing costs may turn out to be a more expensive monthly payments than one with a higher interest rate and lower closing costs.

Make sure that you’re comparing loans that the APR is consistent. For example, if the average 30-year fixed mortgage rate is 3.030%, then the APR is 3.250%.

Are we headed for real estate crash?

Every fall, when the housing market begins the annual slowdown, buyers and sellers begin to ask if we are destined for another crash like the country experienced in 2007.

The housing market crash 15 years ago was responsible for a worldwide recession. Millions of families lost their homes and housing values plummeted more than 30%. It took nearly a decade for the Lansing market to fully recover from that disaster.  While it’s true that the real estate market is experiencing surging prices and a housing shortage much like market environment prior to 2007, the conditions are different than those 15 years ago.

Uncontrolled Mortgage Financing.
Following a period of high interest rates approaching 18%, mortgage money became available for a new low of 7%. The market quickly became flooded with new buyers hoping to  qualify for a mortgage loan. However, there was no agency regulating the business of mortgage financing. It was easy for just about anyone  to set themselves up as a mortgage broker and make a fortune offering loans to unsuspecting buyers who didn’t know they were not financially capable of sustaining monthly mortgage payments.

“If they have a pulse, we’ll give them a loan.”
This was the joke in the mortgage business. It was possible for a buyer to secure mortgage financing for much as $750,000 on “stated income” without proof of employment.  Millions purchased their home with no out-of-pocket expense. Adjustable-rate loans, with closing costs and down payment built into the monthly payment, made it easy for anyone to obtain a mortgage and become a homeowner.

These buyers often had a first and second mortgage and no equity in the home. Initially, the monthly payment was lower than renting, so it seemed like a good idea. However, the adjustable-rate eventually raised the monthly payment to more than many could afford.

Mortgage defaults rapidly increased nationwide with the investors who held those loans unable to sustain the financial loss. Ultimately, some of this country’s largest banks and mortgage companies went out of business.

Mortgage Practices have Changed.
These near fraudulent practices forced the United States Congress and federal regulators to change how mortgage lending is regulated. The Consumer Financial Protection Bureau was created to enforce standardized mortgage practice so that the process of obtaining a mortgage is more transparent. Lenders who do not follow prescribed practices will loose their license and suffer huge penalties.

Many economists are confident that there will eventually be a change in the market. Population movement, interest rates, and consumer confidence all contribute to a shift from “seller’s market” to “buyer’s market”…but not a crash.

 

Normal Real Estate Slowdown Entering September

The current inventory of homes (770) is more than double the 353 homes available to buyers in April. This increase occurs at this time every year and does not indicate a change in the current seller’s market.

Historically low interest rates, currently at 2.87%, continue to offset the increased cost of purchasing a home with properly priced homes continuing to sell quickly, and with multiple offers.

Why the increased inventory?
Each spring the inventory includes a large number of properties that for a variety of reasons didn’t sell the previous year.  A home in poor condition or lacking a second bath may be passed over by buyers willing to wait until something better comes along. Obviously, an unappealing home is not going to easily sell as a growing number of more attractive homes become available.

Then there’s the reduced number of buyers.  As of August 30, 1,022 homes have accepted offers or are pending a closing.  Also, 5,255 homes have closed since the beginning of the year. This adds up to 6,277 buyers who are no longer searching for a home. Add to that figure the families involved with back-to-school activities who may need to postpone home shopping until next spring.

This is good news for September buyers still in the hunt.  Increased inventory plus reduced competition may provide an opportunity to acquire their home of choice.

 

The Five-year Equity Rule

7118744.largeWhen you buy a home, plan on staying there for approximately five years. Why? You’ll need equity in order to sell the home without losing money.

Equity is your percentage of ownership VS how much the bank owns. With any mortgage loan, the first few years of payments go more toward paying interest than reducing your principal. To build enough equity to sell at break-even or a profit, you’ll have to recoup closing costs and fees as high as 14% in some areas. To build equity over time, do the following:

Put more money down. If you put 20 percent down, you’re in good shape, but if you put down 3.5%, 5% or 10%, it will take longer to build equity, so be patient.

Pay your mortgage on time and in full. Paying principal builds equity. The more months you pay, the more equity you’ll build.

Make additional mortgage payments. You can add an extra $50, $100, or any amount per mortgage payment. This will also help you get rid of private mortgage insurance or allow you to refinance to a PMI-free loan once you reach 22% equity.

Let time and the housing market work for you. The housing market typically rises one to two percentage points above inflation annually, but if you’re lucky, your home may gain much more value than that.

Building equity takes time, money and luck, which is why following the five-year equity rule will help you plan when to sell your home.

Home Ownership as a Hedge Against Inflation

Home-EquityThe financial reasons for owning your own home are to build equity and take advantage of tax breaks that do not exist with other assets.  However, the greatest advantage is that owning a home is a terrific hedge against inflation.

Since the early 1900’s, the annual inflation rate in the U.S. has averaged 3.10%. As the cost of goods and services rises, so do the costs of buying a home.  Mortgage interest rates have recently risen slightly, but are still at record lows. If you purchase a home this spring, you will acquire a financial asset that promises to rise in value while you enjoy using it.

That means that while others pay rising rents and home prices increase year after year, your monthly payments become less expensive by comparison. This allows you the financial freedom to reinvest in your home or other worthy goals such as higher education and retirement.

A home can be your inflation hedge.  Once the pandemic is under control, the economy will improve to the point that the government needs to control inflation by raising borrowing rates to banks. When this happens, you can expect mortgage rates to rise, making the purchase of a home more expensive.

Are Sellers Required to Make Repairs

Typically, buyers include a home inspection contingency in their purchase offer that allows them to ask the sellers for repairs and opt out of the contract if the seller refuses. The seller can respond in several ways.Picture1

  • They can readily agree to fix the problem, no matter how expensive.
  • They can agree to fix any problem that’s a safety or potential legal issues, such as mold or radon remediation, but decline minor repairs such as filling in and painting over picture hanger holes in the wall.
  • They can refuse to fix anything, but risk losing the buyer. For safety or code issues, they’ll have to declare the problem on subsequent seller’s disclosures, which could impact the home’s value to future buyers.
  • They can offer to lower the price of the home to cover the cost of the repair for the buyer or offer a closing credit to the buyer to pay for the repair without lowering the price of the home. That way the buyer can complete the repair to their liking.
  • They can ask the buyer to meet them halfway, such as paying more for the home if the seller repairs something major, or replaces the roof.
  • They can ask the buyer to waive additional repair requests if the seller will fix the worst or most expensive problem.

Sellers should know that FHA, VA and other government-guaranteed loans have stricter requirements for home safety and that some repairs are mandatory for the buyer’s loan to close.

Housing Inventory at a Record Low…Sale Prices Escalate

Who would have thought that offering $35,000 over the asking price for a home listed at $215,000 would not be enough?  Yet, buyers competing with multiple offers are finding that their excessively high offer might be beaten by someone willing to pay more.

Homes are selling fast
If you live in a neighborhood where a home has recently been listed, you may notice a great deal of traffic for a few days…then nothing.  This means that buyers had a limited time to view and present their offers.  Then the listing agent presents all offers, often between 6 to as many as 16, for the seller’s consideration. Once a selection is made, showings are generally closed.  This is the current state of real estate sales!

Multiple Offers are  Common
Limited inventory has increased the price buyers are willing to pay because low mortgage rates have given buyers the purchasing power to offer more than the asking price.  Buyers who have been shopping for the past nine months have become used to offering a good deal more than asking price if they hope to close on a home in this competitive market where multiple offers have become a standard.

Appraisal Guarantee
Whenever a mortgage is involved, the lender will require an appraisal of the home’s true market value.  No matter how much a buyer has been approved to borrow, lenders will likely be unwilling to finance a loan for more than the home is worth.

The latest buyer strategy is to agree to make up, with cash, any difference between the offer amount and what the lender will contribute.  This practice favors buyers with large down payments or deep pockets.  Those who can afford only loan programs offering minimal down payments are usually unable to compete with offers containing and appraisal guarantee.

Inflated List Prices
The housing shortage, along with buyer willingness to offer inflated prices, is driving seller expectations upward.  We have begun to see homes listed for as much as 10% over market value, regardless of the properties condition, in neighborhoods that do not support the asking price.  An interested buyer may have to consider paying top dollar for a property that does not quite fit their needs and may require serious updating.

Don’t Panic
Buyers need to be patient during their home search.  More homes will soon become available as the weather warms and we enter the spring selling market.  It may take time to find a home you love.  Once you do, be prepared to move forward quickly.

How Much Home Do You Really Need?

In mid-Michigan’s fast-moving housing market, you may find yourself compromising what you want for what’s available to buy.  Some wish list items you’ll be able to find, but others you may decide to do without as you concentrate on choosing a home that best functions for your needs and budget.

Size:  Most homebuyers want more space, 6901640.largebut square footage can be misleading.  A bigger house isn’t better if you’re paying big bucks to heat, cool and maintain space you don’t use.

Layout:  As you preview homes, think about your daily activities and whether the layout functions for your needs. Does the interior design allow you to make adjustments as your needs change?  For example, a little-used formal dining room or living room could become a home office or playroom.

Materials:  As suggested by the children’s story The Three Little Pigs, houses made
of brick or stone are the safest, longest-lasting materials, but houses made of siding can be more affordable. The quality of materials and the workmanship are what matter most.

Comfort:  You want your family to be comfortable and enjoy the spaces the home offers.  Think about places for family and friends to gather.  Privacy is important, but there should be shared spaces to do homework, play games, and converse.

Costs:  When estimating your monthly payment, include taxes and hazard insurance, but don’t forget to budget for decorating, maintenance and repairs, such as installing curtains and repainting.

 

What Post-Covid Buyers are Seeking in Their Next Home

houseDo homebuyers want the same things in their next home as they did before the COVID pandemic?  In some ways, yes, and in others, no. According to the latest summer Realtor.com survey, post-COVID homebuyers are willing to spend more money on a home; have saved more money toward a down payment as they sheltered in place;  and plan to buy a home sooner than they did in the spring of 2020.

A greater majority of homebuyers surveyed also said they want a three-bedroom home, with two bathrooms, an updated kitchen, and a garage. In a comparison of surveys conducted in both the spring and summer, a notable share of homebuyers wanting move-in ready homes has gone up 10 percent and six percent more buyers are willing to take on longer commutes to get the home they want. In addition, low mortgage interest rates, combined with additional personal savings, are making conditions attractive for them to buy a larger home in a nicer neighborhood.

Six percent fewer homebuyers plan to put more earnest money down, plan to offer above listing price, or offer all cash. Three percent plan to put down more than a 20 percent down-payment.

The trend in these numbers appears to point toward less willingness on the part of homebuyers to compromise on what they want. They may spend more for a home, but plan to preserve as much cash as possible. Homebuyers may be planning to stay in their next homes for a longer period.

Things To Look For When Viewing a House

4989083.largeYou’ve budgeted carefully, been pre-approved for a home loan, searched listings, and found a promising house that might be your new home. You’ve arranged a viewing. But what should you look for when viewing a house? What are problems that can be fixed? What are deal-breakers? And how do you know? This is a pivotal time that can decide whether you want to make an offer on the house or not. When you know what to look for when viewing a house, you can decide if it’s the right fit, or if you should keep looking.

When you view a house, it’s the first time you get to be inside and see every room. Sometimes, the house is just like the pictures you saw online. Other times, it’s quite different. You might be excited about the house, apprehensive, or a bit of both. It’s best to have a written list of what to look for when viewing a house, so your excitement or nerves don’t cause you to overlook key elements. Here’s a list of what to look for when viewing a house.

  • Look at the Grade

As you walk up to the house and look around the yard, take a look at the slope, or grade of the property. The yard should slope away from the home, so water doesn’t accumulate around the foundation. If the grade slopes toward the home, it’s difficult and expensive to fix. Look for soft spots or puddles in the yard, especially if it’s recently rained.

  • Run the Faucets 

If the water is on in the house, run the faucets. If the water pressure is low, it can indicate a problem with the plumbing or water heater.

  • Check Under Sinks 

Check under the sinks and look for water damage or dripping as you run the faucets. Don’t be fooled by new hardware—quick flippers might replace old faucets, but leave faulty plumbing behind.

  • Watch for Discoloration 

One of the most important things to look out for when viewing a home is discoloration on the floor or walls. A yellowed, mildewed look indicates that there’s been water damage in the past. This might indicate a leaky roof or faulty plumbing, both of which can be expensive to fix.

  • Look in the Attic and Basement 

The attic and basement might not be usable spaces, but it’s a good idea to check them out anyway. These areas will often tell you if water damage is a problem in the house, either from a leaky roof or low foundation. This is often where signs of pest problems will appear as well. A few spiders or flies are inevitable, and not a problem, but if you see droppings, insect wings or parts, signs of chewed wood, or nests, there may be an ongoing infestation.

  • Check Out the Roof

The home’s roof is one of the most expensive things to replace. You’ll most likely have to replace the roof eventually if you live in the house long-term, but you don’t want to repair or replace the roof right after you move in. Look for curling or missing shingles, grit in the rain gutters, discoloration or moss. All these signs indicate that the roof hasn’t been replaced in a while, and will need to be replaced soon. Worse, there may already be a leak that has damaged the insulation and wood underneath.

  • Look at Heating and Cooling Systems 

The water heater, furnace and air conditioner systems are expensive to replace, so these are important to look at when you view a house. First, test each of them to be sure that they work. You might turn the heating or cooling system on when you first start looking around, so you can see if it heats or cools the house evenly. If there are strange noises coming from a heating or cooling unit, or the unit is rusted, it’s a bad sign.

  • Check for Cracks 

There may be small, narrow cracks in the drywall due to lumber shrinking after the home is built.  This probably isn’t cause for concern.  However, if you notice large, wide cracks in the walls or the basement floor, this may be a sign of structural damage.

  • Run Appliances 

To check the home’s wiring, run the appliances and then turn on some lights or lamps. If the lights flicker or dim, it can be a sign of faulty wiring. If only one light has a problem, it’s probably a loose bulb or bad switch. However, if a number of lights flicker or dim throughout the house, it indicates bad writing or a faulty circuit breaker, both which can be big hazards.

  • Take a Walk Around 

Once you’ve gone through the house and marked off other items on your list, take a walk around the neighborhood. You might also visit at different times later on. Look for residents walking dogs, children playing, and well-kept yards. These are all signs the neighborhood is safe, friendly, and residents care about it.

Things like unpleasant paint, outdated decor’, or other aesthetic issues can be fixed, but big-ticket items can seriously complicate your purchase. Knowing what to look for when viewing a house can help you decide if you want to continue moving forward or not, but it won’t replace an inspection by an expert. If you’ve gone through your initial list, contact an inspector to take a closer look and make sure the home is safe and structurally sound.