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The Power of Mortgage Pre-Approval

Some Highlights

  • Mortgage pre-approval means a lender has reviewed your finances and, based on factors like your income, debt, and credit history, determined how much you’re qualified to borrow.
  • Being pre-approved for a loan can give you clarity while planning your homebuying budget, confidence in your ability to secure a loan, and a competitive edge in a bidding war.
  • In today’s market, connecting with a lender to get pre-approved may be the game-changer that helps you secure your dream home.
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Why Waiting to Buy a Home Could Cost You a Small Fortune

Many people are sitting on the fence trying to decide if now’s the time to buy a home. Some are renters who have a strong desire to become homeowners but are unsure if buying right now makes sense. Others may be homeowners who are realizing that their current home no longer fits their changing needs.

To determine if they should buy now or wait another year, they both need to ask two simple questions:

  1. Do I think home values will be higher a year from now?
  2. Do I think mortgage rates will be higher a year from now?

Let’s shed some light on the answers to these questions.

Where will home prices be a year from now?

If you average the most recent projections from the major industry forecasters, the expectation is home prices will increase by 7.7%. Let’s take a house that’s valued today at $325,000 as an example.

If the buyer makes a 10% down payment ($32,500), they’ll end up borrowing $292,500 for their mortgage. Applying the projected rate of home price appreciation, that same house will cost $350,025 next year. With a 10% down payment ($35,003), they’d then have to borrow $315,022.

Therefore, as a result of rising home prices alone, a prospective buyer will have to put down an additional $2,503 and borrow an additional $22,523 just for waiting a year to make their move.

Where will mortgage rates be a year from now?

Today, mortgage rates are hovering around 3%. However, most experts believe they’ll rise as the economy continues to recover. Any increase in the mortgage rate will also increase a purchaser’s cost. Here are the forecasts for the first quarter of 2022 from four major entities:

The projections average out to 3.6% among these four forecasts, a jump up from where they are today.

What does it mean to you if home values and mortgage rates increase?

A buyer will pay a lot more in mortgage payments each month if both of these variables increase. Assuming a buyer purchases a $325,000 home this year with a 30-year fixed-rate loan at 3% after making a 10% down payment, their monthly principal and interest payment would be $1,233.

That same home one year from now could be $350,025, and the mortgage rate could be 3.6% (based on the industry forecasts mentioned above). That monthly principal and interest payment, after putting down 10%, totals $1,432.

The difference in the monthly mortgage payment would be $199. That’s $2,388 more per year and $71,640 over the life of the loan.

Add to that the approximately $25,000 a house with a similar value would build in home equity this year as a result of home price appreciation, and the total net worth increase a purchaser could gain by buying this year is nearly $100,000. That’s a small fortune.

Bottom Line

When asking if they should buy a home, many potential buyers think of the nonfinancial benefits of owning a home. When asking when to buy, the financial benefits make it clear that doing so now is much more advantageous than waiting until next year.

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4 Big Incentives for Homeowners to Sell Now

The housing market keeps sailing along. The only headwind that could take it off course is the lack of inventory for sale. The National Association of Realtors (NAR) reports that there were 410,000 fewer single-family homes for sale this March than in March of 2020. The key to continued success in the residential housing market is for more listings to come on the market. However, many homeowners are concerned that selling their homes could be challenging for several reasons.

Recently, Homes.com released the findings of a survey that identified these concerns, as well as what it will take for homeowners to feel comfortable selling their houses. Here are the four major homeowner concerns and a quick explanation of what’s actually happening in the housing market today.

1. Homeowners don’t know if they’ll be able to secure their next home before selling.

In negotiations, leverage is the power that one side may have to influence the other side while moving closer to their negotiating position. A party’s leverage is based on the ability to award benefits or eliminate costs on the other side.

In today’s market, buyers have compelling reasons to purchase a home now:

  • To own a home of their own
  • To buy before prices continue to appreciate
  • To secure a mortgage at a historically low rate, while they last

These buyer needs give the seller tremendous leverage. Most already realize this leverage enables the homeowner to sell at a good price. However, this leverage may also be used to negotiate time to find their next home. The homeowner could sell their home to the buyer at today’s price, which will enable the purchaser to take advantage of current mortgage rates. In return, the buyer might lease the house back to the seller for a pre-determined length of time while the seller finds a new home or has one built.

This gives the buyer what they want while also giving the seller what they need. It’s a true win-win negotiation.

2. Homeowners don’t know if their current home will sell for the asking price or top market price.

This is the perfect time to maximize profits while selling a house. NAR just released a study showing that bidding wars are at an all-time high. The study reveals that when comparing the first quarter of last year to the first quarter of this year, the number of offers on homes for sale doubled from an average of 2.4 to 4.8 offers.

Whenever there’s a bidding war, the price of the item for sale escalates. Bloomberg recently reported:

“For the first time ever, the average U.S. home is selling for above its list price.”

If a seller is looking for a top-dollar sale, there’s no better time to sell than right now.

3. Homeowners don’t know if they will get an offer without their home requiring work or updates.

Again, leverage is the greatest strength a seller has in this market. Due to the lack of homes for sale, many buyers are more willing to take on home improvement projects themselves in order to get the home they’re after.

A recent post on whether or not to renovate before selling notes:

“It may be wise to let future homeowners remodel the bathroom or the kitchen to make design decisions that are best for their specific taste and lifestyle. As a seller, your dollars and time might be better spent working on small cosmetic updates, like refreshing some paint and power washing the exterior. Instead of over-investing in your home with upgrades that the buyers may change anyway, work with a real estate professional to determine the key projects that will maximize your listing, without overdoing it.”

If a seller is worried about doing work or updates on their home, they must realize that today’s historically low inventory likely renders these projects less critical to the sale of the house.

4. Homeowners don’t know if they can have a quick closing process.

When speed is important, there are two points sellers should look at:

  • The time it takes to find a buyer for the home
  • The time it takes to close the transaction

In the latest Existing Home Sales Report, NAR explains:

“Properties typically remained on the market for 18 days in March, down from 20 days in February and from 29 days in March 2020. Eighty-three percent of the homes sold in March 2021 were on the market for less than a month.”

4 Big Incentives for Homeowners to Sell Now | MyKCM

Eighteen days is fast, and it’s a new record. Here are the days the average house is on the market in each state:Regarding the time it will take to close the transaction, all-cash sales accounted for 23% of all home purchase transactions in March. All-cash sales can usually be closed in thirty days.

If a mortgage is necessary, the most recent Origination Insight Report from Ellie Mae shows:

“Time to close all loans decreased in March. The average time to close a purchase fell to 51 days, down from 53 the month prior.”

If you’re looking for a quick closing process, there’s never been a market in which the two-step process (finding a buyer and closing the deal) has taken less time.

Bottom Line

Selling your house can be daunting, especially in a fast-paced market. However, the fact that we’re in such a strong sellers’ market clearly eliminates many common concerns. Let’s connect today so you can learn more about the opportunities for homeowners who are ready to sell.

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82,338 Great Reasons to Buy a Home Today

The financial benefits of buying a home as compared to renting one are always up for debate. However, one element of the equation is often ignored – the ability to build wealth as a homeowner.

Most experts are calling for home prices to continue appreciating over the next several years. The most recent Home Price Expectation Survey, a survey of over one hundred economists, real estate experts, and investment and market strategists, expects home appreciation to increase as follows:

  • 2021: 6%
  • 2022: 4.5%
  • 2023: 4%
  • 2024: 3.6%
  • 2025: 3.5%
82,338 Great Reasons to Buy a Home Today | MyKCM

Using their annual projections, the graph below shows the equity build-up a purchaser could earn, using a $350,000 home as an example:A homeowner could increase their net worth by over $80,000 in five years. That’s an average of $16,000 annually. That number should be in any equation determining the financial benefits of owning a home compared to renting.

Bottom Line

Homeowners are going to make a substantial amount of money in home equity over the next five years. If you’re ready to buy a home, let’s connect so you can enjoy this great benefit as well.

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How Much Time Do You Need To Save for a Down Payment?

One of the biggest hurdles homebuyers face is saving for a down payment. As you’re budgeting and planning for your home purchase, you’ll want to understand how much you’ll need to put down and how long it will take you to get there. The process may actually move faster than you think.

Using data from the U.S. Department of Housing and Urban Development (HUD) and Apartment List, we can estimate how long it might take someone earning the median income and paying the median rent to save up for a down payment on a median-priced home. Since saving for a down payment can be a great time to practice budgeting for housing costs, this estimate also uses the concept that a household should not pay more than 28% of their total income on monthly housing expenses.

How Much Time Do You Need To Save for a Down Payment? | MyKCM

According to the data, the national average for the time it would take to save for a 10% down payment is right around two and a half years (2.53). Residents in Iowa can save for a down payment the fastest, doing so in just over one year (1.31). The map below illustrates this time (in years) for each state:

What if you only need to save 3%?

How Much Time Do You Need To Save for a Down Payment? | MyKCM

What if you’re able to take advantage of one of the 3% down payment programs available? It’s a common misconception that you need a 20% down payment to buy a home, but there are actually more affordable options and down payment assistance programs available, especially for first-time buyers. The reality is, saving for a 3% down payment may not take several years. In fact, it could take less than a year in most states, as shown in the map below:

Bottom Line

Wherever you are in the process of saving for a down payment, you may be closer to your dream home than you think. Let’s connect to explore the down payment options available in our area and how they support your plans.

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Home Is Where the Heart Is

Some Highlights

  • There’s no doubt about it: homeowners love their homes, and that feeling has become even more important over the past year.
  • The vast majority of homeowners say they’re emotionally attached to their home and that it has kept them safe during the COVID-19 pandemic.
  • Owning a home provides a sense of safety, security, and accomplishment. Let’s connect to move your homeownership goals forward today.
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Some Buyers Prefer Smaller Homes

Over the past year, we’ve had plenty of opportunities to reflect on what we consider most important in our lives. The place we call home is one of the biggest things many of us are reevaluating. George Ratiu, Senior Economist at realtor.com, shares:

“The very nature of the pandemic, through the health implications, social distancing, and need to isolate, has really brought a central focus on the importance of home for most Americans…In a sense, it has elevated real estate markets as a centerpiece of our lives.”

For some, this has spurred an interest in making a move to a home that better suits our changing needs. In a recent study on today’s homebuyer preferences, the National Association of Home Builders (NAHB) states:

“When asked more specifically how the pandemic may have impacted their preference for home size21% or about 1 out of every 5 buyers, do want a larger home now as a direct result of the health crisis, while another segment – 12% – would prefer a smaller one instead.”

While you might expect more time at home to lead to a need for more space, it’s interesting that a significant portion of homeowners actually want less. For those who own larger homes right now and have a desire to move, today’s housing market is full of opportunities. Danielle Hale, Chief Economist at realtor.comexplains:

“In a real estate market that is tipped in the favor of sellers, boomers and older homeowners are really the ones holding the cards…Those who are selling homes can use the profits to help them buy new ones.”

As a homeowner today, you likely have equity that can be put toward the purchase of your next home. With the equity growth homes have seen over the past year, you may have more than you think, which can help significantly as you make a move into your next home. According to a report from the National Association of Realtors (NAR):

“Home sellers cited that they sold their homes for a median of $66,000 more than they purchased it. Sellers 22 to 30 years gained the least at $33,400 in equity compared to sellers 66 to 74 years gained $100,000 in equity as they likely had lived in their homes for a longer period of time.”

Despite the benefits of growing home equity, some homeowners are still hesitant to move and could be considering remodeling or making changes to their current space instead. However, if you’ve thought about aging in place rather than downsizing, you may want to reconsider. The U.S. Census Bureau points out:

Of the nation’s 115 million housing units, only 10% are ready to accommodate older populations.”

If your house is no longer the best fit for your evolving needs, it may be time to put your equity to work for you and downsize to the home you really want.

Bottom Line

Today’s housing market favors homeowners who are ready to sell their houses and make a move. If you’re thinking about downsizing this year, let’s connect to discuss your options in our local market.

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4 Major Reasons Households in Forbearance Won’t Lose Their Homes to Foreclosure

There has been a lot of discussion as to what will happen once the 2.3 million households currently in forbearance no longer have the protection of the program. Some assume there could potentially be millions of foreclosures ready to hit the market. However, there are four reasons that won’t happen.

1. Almost 50% Leave Forbearance Already Caught Up on Payments

According to the Mortgage Bankers Association (MBA), data through March 28 show that 48.9% of homeowners who have already left the program were current on their mortgage payments when they exited.

  • 6% made their monthly payments during their forbearance period
  • 7% brought past due payments current
  • 6% paid off their loan in full

This doesn’t mean that the over two million still in the plan will exit exactly the same way. It does, however, give us some insight into the possibilities.

2. The Banks Don’t Want the Houses Back

Banks have learned lessons from the crash of 2008. Lending institutions don’t want the headaches of managing foreclosed properties. This time, they’re working with homeowners to help them stay in their homes.

As an example, about 50% of all mortgages are backed by the Federal Housing Finance Agency (FHFA). In 2008, the FHFA offered 208,000 homeowners some form of Home Retention Action, which are options offered to a borrower who has the financial ability to enter a workout option and wants to stay in their home. Home retention options include temporary forbearances, repayment plans, loan modifications, or partial loan deferrals. These helped delinquent borrowers stay in their homes. Over the past year, the FHFA has offered that same protection to over one million homeowners.

Today, almost all lending institutions are working with their borrowers. The report from the MBA reveals that of those homeowners who have left forbearance,

  • 5% have worked out a repayment plan with their lender
  • 5% were granted a loan deferral where a borrower does not have to pay the lender interest or principal on a loan for an agreed-to period of time
  • 9% were given a loan modification

3. There Is No Political Will to Foreclose on These Households

The government also seems determined not to let individuals or families lose their homes. Bloomberg recently reported:

“Mortgage companies could face penalties if they don’t take steps to prevent a deluge of foreclosures that threatens to hit the housing market later this year, a U.S. regulator said. The Consumer Financial Protection Bureau (CFPB) warning is tied to forbearance relief that’s allowed millions of borrowers to delay their mortgage payments due to the pandemic…mortgage servicers should start reaching out to affected homeowners now to advise them on ways they can modify their loans.”

The CFPB is proposing a new set of guidelines to ensure people will be able to retain their homes. Here are the major points in the proposal:

  • The proposed rule would provide a special pre-foreclosure review period that would generally prohibit servicers from starting foreclosure until after December 31, 2021.
  • The proposed rule would permit servicers to offer certain streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application.
  • The proposal rule wants temporary changes to certain required servicer communications to make sure borrowers receive key information about their options at the appropriate time.

A final decision is yet to be made, and some do question whether the CFPB has the power to delay foreclosures. The entire report can be found hereProtections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X.

4. If All Else Fails, Homeowners Will Sell Their Homes Before a Foreclosure

Homeowners have record levels of equity today. According to the latest CoreLogic Home Equity Report, the average equity of mortgaged homes is currently $204,000. In addition, 38% of homes do not have a mortgage, so the level of equity available to today’s homeowners is significant.

Just like the banks, homeowners learned a lesson from the housing crash too.

“In the same way that grandparents and great grandparents were shaped by the Great Depression, much of the public today remembers the 2006 mortgage meltdown and the foreclosures, unemployment, and bank failures it created. No one with any sense wants to repeat that experience…and it may explain why so much real estate equity remains mortgage-free.”

What does that mean to the forbearance situation? According to Black Knight:

“Just one in ten homeowners in forbearance has less than 10% equity in their home, typically the minimum necessary to be able to sell through traditional real estate channels to avoid foreclosure.”

Bottom Line

The reports of massive foreclosures about to come to the market are highly exaggerated. As Ivy Zelman, Chief Executive Officer of Zelman & Associates with roughly 30 years of experience covering housing and housing-related industries, recently proclaimed:

“The likelihood of us having a foreclosure crisis again is about zero percent.”

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Multigenerational Housing Is Gaining Momentum

Some Highlights

  • If your house is feeling a little cramped with the addition of adult children or aging parents, it might be time to consider a move-up into a multigenerational home that better suits your changing needs.
  • With benefits that include a combined homebuying budget and shared caregiving duties, an increasing number of households are discovering the value of a multigenerational home.
  • With such high demand for houses today, now is a great time to sell so you can upgrade to a multigenerational home that may better suit your evolving needs.
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Don’t Sell on Your Own Just Because It’s a Sellers’ Market

In a sellers’ market, some homeowners might be tempted to try to sell their house on their own (known as For Sale By Owner, or FSBO) instead of working with a trusted real estate professional. When the inventory of homes for sale is as low as it is today, buyers are eager to snatch up virtually any house that comes to market. This makes it even more tempting to FSBO. As a result, some sellers think selling their house will be a breeze and see today’s market as an opportunity to FSBO. Let’s unpack why that’s a big mistake and may actually cost you more in the long run.

According to the Profile of Home Buyers and Sellers published by the National Association of Realtors (NAR), 41% of homeowners who tried to sell their house as a FSBO did so to avoid paying a commission or fee. In reality, even in a sellers’ market, selling on your own likely means you’ll net a lower profit than when you sell with the help of an agent.

The NAR report explains:

FSBOs typically sell for less than the selling price of other homes; FSBO homes sold at a median of $217,900 in 2020 (up from $200,000 in 2019), and still far lower than the median selling price of all homes at $242,300. Agent-assisted homes sold for a median of $295,000…Sellers who began as a FSBO, then ended up working with an agent, received 98 percent of the asking price, but had to reduce their price the most before arriving at a final listing price.”

Don’t Sell on Your Own Just Because It’s a Sellers’ Market | MyKCM

When the seller knew the buyer, that amount was even lower, coming in at $176,700 (See graph below):That’s a lot of money to risk losing when you FSBO – far more than what you’d save on commission or other fees. Despite the advantages sellers have in today’s market, it’s still crucial to have the support of an expert to guide you through the process. Real estate professionals are trained negotiators with a ton of housing market insights that average homeowners may never have. An agent’s expertise can alleviate much of the stress of selling your house and help you close the best possible deal when you do.

Bottom Line

If you’re ready to sell your house this year and you’re considering doing so on your own, be sure to think through that decision carefully. Odds are, you stand to gain the most by working with a knowledgeable and experienced real estate agent. Let’s connect to discuss how a trusted advisor can help you, especially in today’s market.