3 Crucial Questions Most Home Buyers Don’t Know the Answer To…DO YOU?

Whether you are considering the purchase of your first home or trading up to the home your family frequently fantasizes about, there are three crucial questions you must know the answer to:

  1. What is the minimum down payment required to purchase a home?

  2. What is the minimum FICO score required to qualify for a mortgage?

  3. What is the maximum Back-End DTI Ratio allowed?

A survey conducted by Fannie Mae revealed startling information: most Americans don’t know the answer to these three crucially important questions. Here is a graphic showing the results of the survey:

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The percentages are quite disturbing but can explain why so many people believe they are not eligible to purchase a home whether it is a first home or a trade-up home. Here are the actually requirements as per Fannie Mae:

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Bottom Line

If you are considering purchasing a home, make sure you are aware of all your options before moving forward.

Would You Qualify for a Mortgage Now?

The widespread myth that perfect credit and large down payments are necessary to buy a home are holding many potential home buyers on the sidelines. According to Ellie Mae’s latest Origination Report, the average FICO score for all closed loans in May was 724, far lower than the 750 or 800 that many buyers believe to be true. Below is a graph of the distribution of FICO scores of approved loans in May (the latest available data):

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Looking at the chart above, it becomes obvious that not only do you not need a 750+ credit score, but 54.9% of approved loans actually had a score between 600 and 749. More and more experts are speaking up about the fact that if potential buyers realized they could be approved for a mortgage with a credit score at, or above, 600, the distribution in the chart above would shift further to the left. Ellie Mae’s Vice President, Jonas Moe encouraged buyers to know their options before assuming that they do not qualify for a mortgage:
“The high median credit score is due to many millennials believing they won’t qualify with the score they have – and are therefore waiting to apply for a mortgage until they have the score they think they need.” (emphasis added)
CoreLogic’s latest MarketPulse Report agrees that the median FICO score does not always tell the whole story:
“The observed decline in originations could be a result of potential applicants being either too cautious or discouraged from applying, more so than tight underwriting as the culprit in lower mortgage activity.”
It’s not just millennials who believe high credit scores and large down payments are needed. Many current homeowners are delaying moving on to a home that better fits their current needs due to a belief that they would not qualify for a mortgage today.

So what does this all mean?

Moe put it this way:
“Many potential home buyers are ‘disqualifying’ themselves. You don’t need a 750 FICO Score and a 20% down payment to buy.”

Bottom Line

If you are one of the many Americans who has always thought homeownership was out of their reach, meet with a local real estate professional who can help you start the process of being pre-qualified to see if you are able to buy now!

One More Time… You Do Not Need 20% Down To Buy NOW

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A survey by Ipsos found that the American public is still somewhat confused about what is actually necessary to qualify for a home mortgage loan in today’s housing market. The study pointed out two major misconceptions that we want to address today.

1. Down Payment

The survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 36% think a 20% down payment is always required. In actuality, there are many loans written with a down payment of 3% or less.

Many renters may actually be able to enter the housing market sooner than they ever imagined with new programs that have emerged allowing less cash out of pocket.

2. FICO Scores

The survey also reported that two-thirds of the respondents believe they need a very good credit score to buy a home, with 45 percent thinking a “good credit score” is over 780. In actuality, the average FICO scores of approved conventional and FHA mortgages are much lower.

The average conventional loan closed in March had a credit score of 753, while FHA mortgages closed with a 685 score. The average across all loans closed in March was 722. The chart below shows the distribution of FICO Scores for loans approved in March.

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Bottom Line

If you are a prospective buyer who is ‘ready’ and ‘willing’ to act now, but are not sure if you are ‘able’ to, sit down with a professional who can help you understand your true options.

Rent or Buy: Either Way You’re Paying A Mortgage

There are some renters that have not yet purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent free, you are paying a mortgage – either your mortgage or your landlord’s. As The Joint Center for Housing Studies at Harvard University explains:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return.   That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

Christina Boyle, a Senior Vice President, Head of Single-Family Sales & Relationship Management at Freddie Mac, explains another benefit of securing a mortgage vs. paying rent:

“With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.”

As an owner, your mortgage payment is a form of ‘forced savings’ that allows you to have equity in your home that you can tap into later in life. As a renter, you guarantee your landlord is the person with that equity. The graph below shows the widening gap in net worth between a homeowner and a renter:

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Bottom Line

Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, owning might make more sense than renting with home values and interest rates projected to climb.

Don’t Wait! Move Up To Your Dream Home Now!

Now that the housing market has stabilized, more and more homeowners are considering moving up to the home they have always dreamed of. Prices are still below those of a few years ago and interest rates have stayed near historic lows. Sellers should realize that waiting to make the move when mortgage rates are projected to increase probably doesn’t make sense. As rates increase, the price of the house you can afford will decrease if you plan to stay within a certain budget for your monthly housing costs. 

Here is a chart detailing this point:BuyersPurchasingPowerKCM

According to Freddie Mac, the current 30-year fixed rate is currently around 3.75%. With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, by $10,000). Freddie Mac predicts that mortgage rates will be closer to 4.7% by this time next year.

Act now to get the most house for your hard-earned money.

2016 Home Sales Doing Just Fine!!

Some of the housing headlines are causing concern for some consumers who are in the process of either buying or selling a home. Pundits are concerned over the lack of new construction or the month-over-month sales numbers. Let’s set the record straight; 2015 was a good year for residential real estate in the United States and 2016 is starting out stronger. Here is a graph of total homes sold (new construction and existing homes) in the first two months in 2016 compared to last year:Total-Home-Sales-KCM

Will this momentum continue?

If we look at foot traffic (the number of purchasers currently out looking at homes), we can see that the spring buying market has started early and all indicators point to the fact that we may have the best spring in over a decade.

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Bottom Line

The 2016 housing market started out well and looks to be gaining steam. If you are thinking of buying or selling a home, now may be a great time.

Past, Present & Future Home Values

In CoreLogic’s latest Home Price Index, they revealed home appreciation in three categories: percentage appreciation over the last year, over the last month, and projected appreciation over the next twelve months.

Here are state maps for each category:

The Past – home appreciation over the last 12 months1KCM-1-768x576

The Present – home appreciation over the last month

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The Future – home appreciation projected over the next 12 months3KCM-1-768x576

Bottom Line

Homes across the country are appreciating at different rates. As we have mentioned before, the rate of home price appreciation across the country is due to a strong housing market reacting to supply and demand, and not a new housing bubble.

If you plan on relocating to another state, and are waiting for your home to appreciate more, you need to know that the home you will buy in another state may be appreciating even faster.

Meet with a local real estate professional who can guide you through the next steps and help you decide what’s right for you.

91.5% of Homes in the US have Positive Equity

CoreLogic’s latest Equity Report revealed that one million borrowers regained equity in their homes in 2015. The outlook for 2016 remains positive as well, as an additional 850,000 properties would regain equity if home prices rose another 5% this year.

The study also revealed:

  • 95% of homes valued over $200,000 now have a positive equity position
  • 87% of homes valued under $200,000 have entered a positive position
  • The 11.5% growth in home equity in Q4 marked the 13th consecutive quarter of double digit gains

Below is a map showing the percentage of homes with a mortgage, in each state, that have positive equity. (The states in gray have insufficient data to report.)

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Significant Equity Is On The Rise

Anand Nallathambi, President & CEO of CoreLogic, believes this is great news for the “long-term health of the U.S. economy.” He went on to say:

“The number of homeowners with more than 20% equity is rising rapidly. Higher prices driven largely by tight supply are certainly a big reason for the rise, but continued population growth, household formation and ultralow interest rates are also factors.”

Of the 91.5% of homeowners with positive equity in the US, 72.6% have significant equity (defined as more than 20%). This means that nearly three out of four homeowners with a mortgage could use the equity in their current home to purchase a new home now. The map below shows the percentage of homes with a mortgage, in each state, with significant equity.

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Bottom Line

If you are one of the many homeowners who is unsure of how much equity you have in your home and are curious about your ability to move, meet with a local real estate professional who can help evaluate your situation.

The Mortgage Process: What You Need To Know [INFOGRAPHIC]

Some Highlights:

  • Many buyers are purchasing a home with a down payment as little as 3%.
  • You may already qualify for a loan, even if you don’t have perfect credit.
  • Take advantage of the knowledge of your local professionals who are there to help you determine how much you can afford.

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The Main Reason to Use a Real Estate Professional when Selling your House

Every homeowner hopes to accomplish five goals when selling their home:

  1. Sell it for the best price
  2. Sell it within a predetermined time
  3. Sell it with the least amount of hassles
  4. Close on the sale the same day they move into their new home

The fifth reason is the most obvious and the most important:

  1. They want to make sure it sells.

In order to dramatically increase the chances that the house sells, a homeowner should list with a real estate professional in their market. Why? Because agents have access to the vast majority of the available buyers!! According to the National Association of Realtors’ (NAR) recently released 2016 Home Buyer and Seller Generational Trends Report, 87% of all buyers purchased their home through a real estate agent or broker. And more that 8 out of 10 buyers in every age group used an agent (see chart below).

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