The premise of a housing market thaw in 2025 is a compelling one, given the recent trends and expert predictions.
Here are some key factors that could contribute to a more favorable housing market in 2025…
Potential Interest Rate Reductions: As the Federal Reserve attempts to balance inflation and economic growth, there’s a possibility of interest rate reductions. Lower rates could make mortgages more affordable, stimulating demand.
Easing Inflationary Pressures: A decline in inflation could lead to a more stable economic environment, which might encourage more buyers to enter the market.
Increased Inventory: If more homeowners decide to sell, it could increase housing inventory, providing more options for buyers and potentially moderating price growth.
Pent-Up Demand: Many potential buyers have been sidelined due to high interest rates and limited inventory. As market conditions improve, this pent-up demand could fuel activity.
However, it’s important to note that several factors could influence the market’s trajectory:
Economic Uncertainty: Global economic conditions, geopolitical events, and job market fluctuations could impact buyer confidence and purchasing power.
Regional Variations: Housing market trends can vary significantly across different regions, influenced by local economic factors, job markets, and demographic shifts.
Government Policies: Government policies, such as tax incentives or regulations, can have a substantial impact on the housing market.
To make informed decisions about buying or selling a home in 2025, consider consulting with a real estate agent or financial advisor. They can provide personalized advice based on your specific circumstances and the latest market trends.
Would you like to discuss any specific aspects of the housing market, such as potential investment strategies, first-time homebuyer tips, or the impact of emerging technologies on real estate.
So, you’re curious about hopping into the real estate investing game, and you’ve heard that a real estate investment trust (REIT) is a great way to enter that space. Well, that definitely can be true!
REITs are a passive landlord’s dream since they don’t require you to perform constant maintenance on a property or find new tenants every couple of years—unlike traditional real estate investing. But even though REITs are sometimes a great investment, they can just as easily flat-out suck.
To help you avoid falling into a trap, we’ll break down exactly how REITs work and what they are in the first place. That way, you can confidently decide whether investing in a REIT is a good option for you. Let’s hop in!
What Is a REIT?
A real estate investment trust, or REIT (pronounced “reet”), is basically a mutual fund that buys real estate instead of stocks. REITs have a special tax status that requires them to pay at least 90% of their profits back to the shareholders.1 This payment is called a dividend. If they follow this rule, then they aren’t taxed at the corporate level like every other type of business.
All REITs have to meet certain requirements to qualify:
Must be a trust, association or corporation
Must be managed by at least one official trustee or director
Must have at least 100 shareholders
Five or fewer shareholders may not own more than 50% of the shares2
There are also rules around how much of a REIT must be invested in actual real estate properties and how much of the gross income from a REIT must be generated by real estate.
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What Types of REITs Are There?
There are a handful of different types of REITs out there, which can make things feel even more complicated. So let’s unpack the differences.
Equity REITs
Equity REITs are the most common. They own and manage properties, and most of them are specialized, meaning they only invest in specific types of real estate.
Some of these types include:
Apartment complexes
Single-family homes
Big-box retail space
Hotels and resorts
Health care buildings and hospitals
Long-term care facilities
Self-storage facilities
Office buildings
Industrial buildings
Data centers
Mixed-use developments
Equity REITs make money for their investors in three main ways:
Collecting rent from tenants on the property they own
Allowing the values of the shareholders’ investments to grow as property values appreciate
Buying low and selling high
Mortgage REITs
Mortgage REITs borrow cash at short-term interest rates to purchase mortgages that pay higher long-term interest. The profit is in the difference between the two interest rates.
Confused? Don’t sweat it—mortgage REITs are complicated. Hopefully, looking at an example will make things a little clearer. Here’s what a typical mortgage REIT looks like in practice:
The REIT raises $1 million from investors.
It borrows $5 million on a short-term loan, giving them $6 million in cash.
The loan has a 2% interest rate and a $100,000 annual payment.
With the $6 million, the REIT buys up existing mortgages that pay 4% interest.
Those 4% mortgages combine to earn the REIT $200,000 a year.
So the REIT’s annual profit is $100,000.
To make as much money as possible, mortgage REITs tend to use a lot of debt—like $5 of debt for every $1 in cash, and sometimes even more. Plus, the interest rate on those short-term loans could increase, leading to smaller profits than expected—or even a loss.
All of that makes mortgage REITs extremely volatile. And investing in debt is always a bad idea because it introduces way too much risk into the equation.
If you do invest in REITs, stay far away from this variety.
Non-Traded REITs
Now, some REITs aren’t publicly traded on national stock exchanges. Non-traded REITs might still be registered with the Securities and Exchange Commission (SEC), but you won’t find them available for trade on the stock market.
A big risk here is that it can be very hard to know the value of a non-traded REIT until years after you’ve invested. So if it’s a dud that’s losing your money, you won’t know for a long time. Another knock on these REITs is that they usually come with higher up-front fees—sometimes totaling around 10% of your investment—that can significantly lower the value of your investment.3Yikes!
Private REITs
A private REIT is neither registered with the SEC nor available for trade on stock exchanges. If you invest in one, be prepared to forget you had that money. They’re usually illiquid—a fancy term that means an investment can’t be easily turned back into cash. To get the best returns, you probably won’t have access to the money for a long time, which makes it very difficult to get out of a private REIT once you’re in one. It’s not as easy as selling a mutual fund.
For a private REIT to work for you, you’d need to be in a group that isn’t milking the REIT for their profit and driving up management fees—leaving nothing on the table for investors. To sum it all up, this is risky stuff. Beware.
Hybrid REITs
A hybrid REIT is basically a combination between an equity REIT and a mortgage REIT—meaning the fund has company-owned properties and mortgage loans as well.
This may sound like a smart and balanced way to invest in REITs. But in many cases, hybrid REITs lean more heavily toward one type of investment over the other. This means you need to be very careful when looking at hybrid REITs—especially if they look more like those mortgage REITs we talked about earlier that borrow a lot of money to try to generate profits for investors. That’s a dangerous game—one you should try to avoid.
Pros and Cons of Investing in REITs
Just like with most investments, investing in REITs has both risks and benefits. Let’s walk through the biggest ones:
Pros
They can help you diversify your investments. REITs give you the chance to add real estate to your investment portfolio without the headaches that come with owning rental properties.
Some offer higher dividends than other investments. Dividends are payments made to investors to reward their investment and share the profits with them. Since REITs are required to pay out most of their taxable incomes to shareholders, that means you could receive more in dividend income from REITs than other types of investments.
They pay no corporate tax. Since REITs don’t pay corporate income taxes, investors don’t have to worry about “double taxation.” But you’ll still pay ordinary income taxes on the dividends you get and on capital gains when you sell your REITs at a profit. (It’s a good idea to talk to a tax pro before you invest in REITs.)
They are professionally managed. Like actively managed mutual funds, REITs are usually managed by a team of professionals who know the real estate industry inside and out and can make sure that the properties inside of the fund are being maintained and managed for high returns.
Cons
Interest rates can be volatile. Since real estate values tend to go up and down depending on what the interest rates are, the same rule applies to REITs. Rising interest rates can jack up the cost to take out a mortgage loan and put a damper on demand for real estate—and that could negatively affect the value of a REIT in the process.
Some REITs use debt to invest in real estate. If you remember nothing else, remember this: Debt equals risk. And mortgage REITs almost exclusively use debt to build their funds, which means they’re very risky. That’s a no-no.
Some REITs are hard to sell quickly. Since non-traded REITs can’t be sold on the open market, they’re considered “illiquid investments”—which is just a fancy way of saying they can be hard to get rid of if you want to sell.
They don’t give you any control. When you invest in a REIT, you’re giving control over to the REIT’s management team. They’ll be the ones deciding which properties to invest in and how to manage those properties—you’re just along for the ride.
How to Invest in a REIT
There’s no secret formula here—anyone can invest in a REIT by simply purchasing shares through a broker, a REIT exchange-traded fund (ETF), or a REIT mutual fund. Basically, it’s the same process you would go through if you were buying mutual funds or single stocks.
But that’s only ifthe REIT is publicly traded. For a non-traded or private REIT, you’d have to purchase shares through a broker that’s associated with a non-traded REIT.
Bottom Line: Is a REIT a Good Investment?
It depends. REITs have come a long way over the past decade, and now they’re a legitimate way to invest in real estate if you have no interest in being a landlord. But they’re not for everyone, and there might be better ways for you to invest in real estate.
First off, you should only considerinvesting in REITs once you’ve paid off your own home and you’ve maxed out your tax-advantaged retirement accounts—like your 401(k) and Roth IRA. Until then, stick with the four types of growth stock mutual funds we recommend for retirement investing, which offer the most balanced growth over time.
Second, REITs range from awesome to really bad, so you have to do your homework before you invest in one.
If you are going to invest in a REIT, an equity REIT is probably the way to go. Since they own and manage the properties inside the fund, they aren’t as risky as mortgage REITs. They’re also registered with the SEC (unlike private REITs), and they offer more transparency than non-traded REITs. Plus, you might find a handful that perform as well as good growth stock mutual funds.
Ultimately, you want to choose a fund with a long track record of strong returns that’s run by a competent group of investors. And no matter what, your REIT investments should be no greater than 10% of your net worth.
Consider the advantages and disadvantages of using real estate to fund your retirement years.
Instead of buying, renting, or selling property yourself, consider adding real estate to your retirement plan through a fund.
Key Takeaways
Real estate investments can be a key part of your retirement plan, offering diversification, steady income and a hedge against inflation.
Selling your home to downsize can free up funds for retirement, but consider tax implications and alternative income sources.
Owning rental properties provides income but requires a large upfront investment and ongoing management.
Real estate investment trusts offer a more passive way to invest in real estate with greater liquidity.
When planning for retirement, real estate investments can help you build wealth and add additional income to your bottom line. Not only can real estate diversify your portfolio, can also act as a hedge against inflation.
There are plenty of ways to include real estate in your retirement plan, each with pros and cons. Some of the most common methods include:
Selling your home
Owning a rental property
Purchasing and selling property
Contributing to a real estate fund
Sell Your Home to Help Fund Retirement
If you have paid the mortgage for your current home or have built equity, you could sell it in retirement. The proceeds from the sale can be used to support you in retirement or you may choose to invest those funds to generate future returns.
“Evaluate the tax implications and the after-tax proceeds you’ll receive if you sell your real estate. Then compare that to the after-tax cash flow you can expect from other investment types,” says Dana Anspach, a certified financial planner at Sensible Money in Scottsdale, Arizona.
You can also reduce your living expenses in retirement by downsizing to purchase a smaller home that costs less and requires less maintenance, or renting an apartment.
Even if you sell your home, you’ll likely need other sources of income to support you in retirement. These funds could come from other accounts like a traditional or Roth IRA, 401(k), an annuity or a pension.
Own Rental Property
Another way to invest in real estate is by owning a rental property.
Consider the yield on this type of investment as it relates to your involvement in property management.
“Compare that to the results you may expect if you outsource responsibilities to a property manager. However, delegating to a property manager will not alleviate the cash flow impact from periodic repairs or loss of income if the property doesn’t have a tenant,” Anspach says.
Owning a rental property typically requires a large up-front investment. You may be in a position to pay in full with cash or use your savings to make a down payment and take out a mortgage. From here, you want to consider carefully whether the property’s rental income will be enough to cover its related expenses.
A drawback of owning and renting property is that the investment is typically not very liquid. If you have a financial emergency, selling the place quickly and receiving cash when needed might be difficult.
Even if you sell, you might not get the best price if market prices are lower than average in that area. You’d also have to consider any capital gains taxes that
Buy and Sell Multiple Properties
If you live in an area where housing prices are expected to rise, you might be interested in purchasing multiple homes with the plan of selling them later for a higher price.
You could also acquire several properties with the intention to rent to tenants. As your income increases, you could build a real estate portfolio to help fund your retirement.
While owning properties may help increase retirement funds, there is often a great deal of work involved in finding places, acquiring them, making needed repairs or renovations and then renting or selling them.
The time requirement for real estate is typically much more demanding than other types of investments. Those who cannot commit much time might consider a more passive approach to investing.
When planning for retirement, real estate investments can help you build wealth and add additional income to your bottom line. Not only can real estate diversify your portfolio, can also act as a hedge against inflation.
There are plenty of ways to include real estate in your retirement plan, each with pros and cons. Some of the most common methods include:
Selling your home
Owning a rental property
Purchasing and selling property
Contributing to a real estate fund
Sell Your Home to Help Fund Retirement
If you have paid the mortgage for your current home or have built equity, you could sell it in retirement. The proceeds from the sale can be used to support you in retirement or you may choose to invest those funds to generate future returns.
“Evaluate the tax implications and the after-tax proceeds you’ll receive if you sell your real estate. Then compare that to the after-tax cash flow you can expect from other investment types,” says Dana Anspach, a certified financial planner at Sensible Money in Scottsdale, Arizona.
You can also reduce your living expenses in retirement by downsizing to purchase a smaller home that costs less and requires less maintenance, or renting an apartment.
Even if you sell your home, you’ll likely need other sources of income to support you in retirement. These funds could come from other accounts like a traditional or Roth IRA, 401(k), an annuity or a pension.
Feeling a bit unsure, or even afraid, to move with everything going on right now? The decision to move shouldn’t be scary, it should be exciting. And the best way to eliminate any fear is to work with a pro.
Real estate agents are so much more than just transaction facilitators; they’re trusted guides to help you navigate the complexities of the housing market with confidence and ease. And a great agent can turn what may feel like a daunting process into a manageable—and even enjoyable—experience.
That’s why, in a Bright MLSsurvey, respondents agreed partnering with an agent is essential and helps cut down on their stress:
Here are just a few examples of why that expertise can give you so much peace of mind.
1. Explaining the Current Market
You may be seeing misleading headlines about a potential market crash, falling prices, and more. And when you’re not an expert yourself, it’s easy to get swept up in the clickbait and let that scare you. As Jason Lewris, Co-Founder and Chief Data Officer at Parcl, says:
“In the absence of trustworthy, up-to-date information, real estate decisions are increasingly being driven by fear, uncertainty, and doubt.”
A real estate agent is there to help you separate fact from fiction and to debunk any headline that does more to terrify than clarify. With their deep understanding of local market trends, home values, inventory levels, and more, they’ll help you feel more confident in your decision.
2. Walking You Through the Process Step-by-Step
Is this your first time going through the process as a buyer or a seller? Don’t worry. Your agent will walk you through every step along the way, from the initial conversation all the way to closing day. As NerdWallet explains:
“If it’s your first time buying — or selling — you’re likely to come across terms you don’t recognize and tasks that seem baffling. What’s the difference between pending and contingent? Why do you need title insurance? How thoroughly do you need to fill out disclosure forms? Your agent should be able to confidently and competently explain it all.”
And if you’ve done this before, but it’s been a while, an agent will tailor how they explain it all to your previous experience. They won’t bog you down with details, they’ll only give you as much of a refresher as you want and need.
3. Advocating for Your Best Interests
Does the thought of dealing with the back and forth of the transaction make your palms sweaty? Put that anxiety aside. Your agent is a skilled negotiator trained for these exact scenarios. And the best part is, they work for you. So, it’s your goals they’re using that expertise to fight for.
They’ll work to secure the best possible terms for you, whether it’s getting a better price as a homebuyer or negotiating a higher sale price as a seller. This removes the fear of a bad deal or being taken advantage of during the process.
4. Solving Any Unexpected Problems Quickly
Worried something is going come up that you don’t know how to handle? Rest assured, your agent has you covered.
Agents are skilled problem-solvers. They not only address issues, but they get ahead of them before they become deal-breakers – and that helps keep the process on track. So, if any challenges do pop up, know your agent has the skills and experience necessary to find a solution that works for you.
Bottom Line
Don’t let fear or uncertainty hold you back from achieving your goals. With an expert agent by your side, you can move forward with confidence.
Preapproval differs slightly from prequalification, but knowing how both work can be helpful.
Setting a budget and checking your credit are important steps in the mortgage preapproval process.
Key Takeaways
Preapproval is one of the first steps in getting a mortgage and involves a credit pull and a financial review.
You will need a collection of financial documents showing your income and payment history, such as W-2 forms, pay stubs and tax returns.
You can improve your chances of preapproval by making consistent payments on debts and paying more attention to your credit report.
When you’re serious about buying a home, one of the first steps you should take is getting a mortgage preapproval. It’s a relatively quick process that involves a lender pulling your credit and reviewing your financial situation to determine whether you qualify for a home loan and how much house you can afford.
You’ll need to give the lender several documents, including pay stubs, tax forms and bank statements, to verify your earnings, debts and assets. If you qualify based on that information, the lender will estimate the amount you can borrow and document it in a preapproval letter.
When you’re ready for preapproval, understanding how this step works and doing a little prep can be helpful.
Mortgage Preapproval vs. Prequalification
When you start researching mortgage rates, you may hear lenders use the terms preapproval and prequalification interchangeably. Both terms refer to a document that states a lender is tentatively willing to lend you up to a certain amount, based on information you provide. The key difference is whether the lender verifies that information.
Prequalification
A prequalification involves plugging some financial details into an online form or having an informal conversation with a lender. You’ll answer questions about your credit score and finances, and your lender uses that information to estimate your loan amount. “The lender doesn’t pull your credit report or verify your information to determine what you can afford,” says Melissa Cohn, regional vice president with William Raveis Mortgage.
The prequalification roughly estimates how much you can borrow and the interest rate you’ll receive, but it doesn’t carry the same weight as preapproval because the lender hasn’t verified your information.
Preapproval
A preapproval is more in-depth because “it says that the lender has put eyes on your tax returns, your W-2s, your pay stubs, your assets, your credit – and verified the accuracy of the information you provided,” says Nicole Rueth, mortgage advisor with Movement Mortgage. This puts you into a position where you can set a realistic housing budget and negotiate a purchase contract with a seller.
The preapproval letter is usually good for 60 to 90 days to show an agent or a seller that you’re working with a lender. Sellers typically require you to include a preapproval letter with your purchase offer, so having one from the start can put you ahead of other buyers who don’t have one.
Just keep in mind it doesn’t guarantee you a loan – you’ll still have to go through the underwriting process later – and it’s not a binding agreement. You can still shop around for lenders once you select a house.
How to Get Preapproved for a Mortgage
Understanding the mortgage preapproval process can help you prepare your finances for it. What to do:
Set a Budget
A lender can preapprove you to borrow a certain amount, but you may choose to borrow less. One way to set a monthly mortgage budget is by using the amount you’re currently paying toward housing. Or you can start fresh: Subtract all of your nonhousing expenses from your take-home pay to estimate how much you can put toward a home loan.
Lenders do a version of this when checking your debt-to-income ratio, or DTI. Most lenders like to see that your combined debts equal less than 36% of your income before taxes, though you could be approved with a DTI of 45% to 50%.
Estimate Your Down Payment
The minimum down payment you need depends on the type of mortgage you get and the lender’s requirements, and it can vary from 0% to 20% of the home’s purchase price. You can choose to put down more, but consider your other needs. You’ll also need to cover closing costs, and it’s a good idea to have cash reserves in the bank.
Check Your Credit
Your credit history and credit score are major factors in determining whether you’re preapproved and what interest rate you receive. You can pull a free report from each of the three credit bureaus weekly at AnnualCreditReport.com. Read through the reports and check for errors, such as incorrect account balances and duplications, and signs of potential identity theft, like new accounts you don’t recognize. You can dispute these errors and report identity theft to the credit bureaus.
If your score has room to improve, you can do so by paying down debt and making on-time payments every month.
Collect Your Documents
Lenders will look at your credit history, income, assets and debts to see whether you should be preapproved for a mortgage. Before applying for preapproval, gather the following:
W-2 forms from the last two years
Pay stubs from the previous 30 days
Tax returns from the last two years
Personal bank statements for the last two to three months
Identification, such as a driver’s license
Name and contact information for employment verification
Other forms of income verification, such as a Social Security award letter, alimony letter or pension pay stubs
Documents supporting your current housing arrangement, such as copies of 12 months’ worth of canceled rent checks or a letter from a family member that states an informal agreement
Divorce decree, if applicable
The lender also pulls your credit scores and credit reports to check for current debts. When going through your bank statements, the lender “confirms you have the assets to cover your down payment and closing costs, then looks for additional debts that aren’t reporting to the credit bureaus,” Rueth says. These may include alimony, child support and payments for buy now, pay later services.
If you’re self-employed or you have other special circumstances, you will need more documents, such as:
Business tax returns for the last two tax years
Business bank statements for the last two months
Year-to-date profit and loss statement (may require a CPA signature)
Contact a Lender
Make a list of lenders that operate in your state, offer the type of home loan you need and have a strong reputation. Call one of the lenders and ask any questions you have, such as the loans it offers and closing costs it charges. If you feel comfortable with the lender, ask for a preapproval. You can get more than one preapproval to shop for the best rate, but it depends on your situation.
“Getting several preapprovals could help you speed up the closing time line if your offer’s accepted,” Rueth says. “I would do the work upfront. I wouldn’t want to wait until I’m under the gun and feel trapped.”
Get Preapproved
The lender will get consent to pull your credit and ask questions about your financial situation. It may ask you to upload your documents in an online portal or to email them. Once you have the preapproval letter, you can shop for homes within your price range and submit your purchase offer.
Improve Your Chances of Getting Preapproved
Take these steps to avoid being denied a mortgage preapproval:
Fix errors on your credit report. Credit reports aren’t perfect, and errors that affect your score can happen. Find and fix errors on your credit report before you ask for a mortgage preapproval.
Pay down debt. Debt can hurt your credit and is a factor in the loan amount you could receive. Eliminating as much debt as possible can put you in a better position for mortgage preapproval.
Save more. Saving is a sound move for your finances, but it will also make you a better loan candidate in the eyes of the lender. Strive to tuck away at least three months’ worth of mortgage payments to help cover financial emergencies without going into debt. If you can save up to six months’ worth of your monthly expenses, that is even better in the long run.
Prospective first-time buyers face some tough decisions. Should you buy a starter home now or save to purchase your forever home?
Key Takeaways:
Starter homes are smaller, more affordable homes designed to get first-time buyers into the housing market.
In the current real estate market, starter homes are more expensive than they were a few years ago and more difficult to find.
The definition of a starter home is beginning to change as priorities shift.
Most homeowners begin with a starter home, a smaller home that needs a little TLC in a more affordable price range. But these days, starter homes are hard to come by.
Starter homes are much more expensive than they were a few years ago, and the ones that do go on the market face fierce competition. This has left many first-time buyers wondering if a starter home is worth it, and whether they should wait to purchase their forever home instead.
A starter home is the first home someone can typically afford to buy. Starter homes are smaller, lower priced homes that help first-time buyers get their foot in the door of homeownership.
According to Michaela Cancel, senior vice president of Neighborhood Development Company, a starter home can be a condo, townhouse or stand-alone structure with limited bedrooms and is often under 1,500 square feet. Homeowners usually live in these dwellings for three to five years or until they see a return on their investment.
“(Starter homes) typically are either new middle market construction grade units or are much older housing stock that come with substantial maintenance costs,” Cancel says. “Either way, they don’t have a lot of bells and whistles as older housing stock doesn’t reflect today’s preferences and middle market construction grade units are budget-conscious/friendly for first-time homebuyers.”
Because of the low supply in the current housing market, starter homes are challenging to find and much more expensive than they were a few years ago.
“The definition of a starter home hasn’t necessarily changed; it just isn’t available in the traditional sense,” says Kurt Carlton, co-founder and president at New Western, a real estate investment marketplace. “With roughly 4 out of 5 homeowners holding onto a mortgage under 5%, no one is moving or putting their home on the market.”
Thanks to higher home prices, starter homes aren’t necessarily starter homes anymore. According to Redfin, buyers need to earn about $80,000 to afford a median-priced starter home.
In December 2019, the national median existing-home price for all housing types was $274,500, according to National Association of Realtors data. Since then, home prices have skyrocketed. In August 2024, NAR reported that the median existing-home sales price was $416,700 – a 52% increase since 2019.
In 2023, there were only 352,500 affordable listings, down 40.9% from 596,135 in 2022, according to Redfin. “That means that what we used to call the starter home has become an endangered species,” Carlton says.
A listing is considered affordable if the estimated monthly mortgage payment is no more than 30% of the local county’s median household income. The national share was calculated by taking the sum of affordable listings in the metros Redfin analyzed and dividing it by the sum of all listings in those metros.
New housing starts have always been significantly behind demand, Cancel says, but the U.S. fell even further behind in housing supply during the financial crisis of 2008, when homebuilders saw demand drop as consumers began to fear overpaying for a crashing real estate market. “The last decade saw marginal improvements in the supply-demand imbalance, but the shortage took another major hit from the pandemic,” Cancel adds.
Carlton says affordable housing is also harder to come by because there are currently about 15 million vacant homes in the U.S. that need renovating to become habitable. “The good news for housing supply is that independent investors are finding these homes, fixing and flipping them in the middle-income range and getting them back on the market,” Carlton says.
Interest rates are another affordability challenge, Cancel says, and homeowners locked into a mortgage rate under 5% cannot afford to trade up. “And, to add insult to injury, the shortage of these resale homes on the market has caused entry-level homes to surge in value, where new homebuyers are already competing with developers paying all cash for teardowns,” Cancel says.
Is It Cheaper to Build a Starter Home?
Prospective buyers can always build a starter home, but it can be difficult finding a company that builds more affordable homes. Data from the Census Bureau shows that 40% of homes constructed in 1980 were considered entry-level homes. In 2019, only 7% of homes were entry-level, according to a 2021 report from Freddie Mac, and almost every state is building fewer starter homes.
Clint Jordan, realtor at The Jordan Group and founder of Mil-Estate Network, says builders have focused on higher-end homes due to the increased profitability. “Building material costs have risen dramatically in recent years, labor shortages are rampant and zoning laws in some areas make it tough to develop smaller, more affordable homes,” he says.
Most of these costs are being passed along to buyers.
According to Jordan, prospective buyers may have better luck in the existing-home market. “Existing homes, on the other hand, often come at a more affordable price point because they don’t carry the same upfront costs that new builds do,” he says. “Plus, you can move in much faster and start building equity right away.”
While some builders have recognized the demand for starter homes and are trying to meet it, Jordan says it’s not happening quickly enough. “Even if the supply is increased, it doesn’t necessarily mean those homes will be as affordable as buyers are hoping,” Jordan explains.
Unlike a starter home, which focuses on the basics, a forever home is a larger single-family home where you can see yourself living for at least 10 years, according to Zillow. Forever homes are roughly double the price of starter homes, with about 2,000 square feet of living space, three bedrooms and two bathrooms. Forever homes have more space to accommodate life-changing events like a growing family.
Homeowners in forever homes have stable jobs and like the area where they live. Forever homes don’t necessarily have to be forever, but homeowners usually don’t have any plans to move in the near future.
“A forever home is one you intend to stay in for decades, whereas a starter home is often viewed as a stepping stone on your real estate journey,” Jordan says.
Prospective first-time buyers face some tough decisions. Should you buy a starter home now or save to purchase your forever home?
“I am a huge fan of buying now if you are ready. Waiting costs and loses you money,” Jordan says. “Every month you pay rent, you are throwing away money, losing equity and not gaining from the home’s appreciation.”
Buying a home instead of renting gives you the chance to build valuable equity. However, buying a home is only good if you’re in the financial position to do so. This means you need a realistic understanding of how much it costs to purchase a home, including the down payment, closing costs and ongoing costs associated with homeownership.
You can also take steps to make yourself a more creditworthy borrower, which increases your chances of securing a lower interest rate on your mortgage. Saving for a larger down payment can also reduce your monthly mortgage payment, often the biggest challenge for first-time buyers.
Carlton says first-time buyers still want a starter home they can afford, but instead of sitting on the sidelines, they’re shifting their priorities as far as what they want in their first home.
“They are living with aging parents or with adult siblings or friends to get more house for their money and adding a mother-in-law unit to accommodate more people,” Carlton says. “The definition of a starter home is evolving and expanding to satisfy the middle-income buyer rather than changing altogether.”
If you’re self-employed and want to buy a home, you’ll likely face a bit more scrutiny than borrowers with traditional wages. That’s because mortgage lenders routinely require proof of consistent income for mortgage approval, which can be tricky when you can’t show a W-2 or recent paycheck. Self-employed borrowers should be prepared to provide evidence of active income – simply put, the money you earn for your work.
Determine If You’re Self-Employed
First, you should understand what it means to be classified as self-employed. In general, lenders will consider you self-employed if a significant portion of your income comes from being a gig worker, freelancer or independent contractor.
If you receive 1099 tax forms rather than a W-2 from an employer, that will also indicate self-employment. Lastly, if you own 25% or more in a business, then you’re self-employed as far as the lender is concerned.
While self-employed borrowers are held to the same lending standards as W-2 workers, the mortgage process itself can be more challenging.
Why Are Self-Employed Home Loans More Complex?
In general, lenders are concerned whether all applicants, including self-employed workers, can consistently repay their loans. They’ll need to see that your income is high enough to pay for your mortgage, that it’s likely to remain high, and that you have a good track record of repaying your debts. This is easier to do when income is steady and predictable, which isn’t always the case for self-employed people.
Proving the stability of your business requires documentation, including evidence of work, payments and activity supporting business operations, such as a business website. “Every customer is so uniquely qualified and their businesses are so different, so each one needs to be looked at differently,” says Ashley Moore, community lending manager at JPMorgan Chase.
How Self-Employment Income Is Calculated
Lenders typically look at your income for the past two years – and for the self-employed, it will be your net profit, not your gross income. That is, they will look at the total income you have left after your deducted expenses.
If you earned more in Year 2, they will take an average of the two years. If you made less in Year 2, they will go by the lower-earning year. Lenders might be wary if your income drops significantly, so expect to provide an explanation if that’s the case.
General Requirements for Self-Employed Mortgages
Generally, borrowers need at least two years of self-employment income to qualify for a mortgage, as per Fannie Mae and Freddie Mac guidelines. In some cases, borrowers who are self-employed for just one year may still qualify if they meet other criteria, like working in the years prior in the same occupation with comparable or higher income.
Without two years of business records, you can expect a higher level of scrutiny, and any prior employment will have to be verified, as well.
How to Get Approved for a Mortgage If You’re Self-Employed
Qualifying for a mortgage when you’re self-employed means showing the lender that you can make payments for the entire length of the loan.
Here’s what lenders want to see from self-employed mortgage applicants:
Stable or increasing income. Some fluctuation is acceptable, but that’s why lenders like to see two full years of tax returns. Lenders are looking for the worst-case scenario, so they will probably consider the lower of the two years when crunching their numbers. Be mindful that significant decreases in income from year to year might raise additional questions during underwriting because the lender may see that as a sign that your business is declining. Self-employed mortgage applicants may also be asked to provide a year-to-date profit-and-loss statement as well as business deposit account statements for the most recent months.
Consistent work. Ideally, you should have at least two years of self-employment income in the same industry. If you’re newly self-employed, some lenders will make an exception if you have one year of self-employment tax returns plus W-2s from an employer in the same field. Still, a short history of self-employment may make it more difficult to assure lenders that your income will remain consistent.
Good credit. You’ll need a track record of repaying your debts. Foreclosures, delinquencies, collections, repossessions and bankruptcies increase risk for the lender. Lenders will review the type, age, use, status and limits of your revolving credit accounts as well as how often you applied for credit in the last year. “There are a lot of different loan programs and products that require different credit criteria, and that’s going to look the same for a borrower whether they are self-employed or have a W-2,” says Moore.
Low debt-to-income ratio. Lenders typically look for a debt-to-income ratio – the percentage of your monthly income you put toward paying your debt – to be 43% or lower. If your debt payments are perceived as unmanageable for your income, you might not qualify for the amount you need to purchase a home or receive an offer at all.You’ll also want to be careful if you’re self-employed and tend to deduct a fair amount of business expenses. This can hamper qualification since mortgage underwriters typically look at income after expenses. “The problem that we run into is a self-employed borrower can write a lot of things off,” says Sean Cahan, president of Cornerstone First Mortgage in San Diego. So those savvy deduction moves that help at tax time could end up reducing your bottom line, which can then impact the DTI.
However, Cahan notes that loan officers who have experience working with this type of borrower should know how to interpret a tax return and run the proper calculations in these cases. He recommends that self-employed people simply ask the loan officer to show them the actual worksheet the officer used to come up with the effective income amount. “If they don’t know how to break it down for you, move on to the next lender,” he says.
Cash reserves. Your mortgage payment is due every month, even when work has dried up or if your business goes through a seasonal slump. Lenders may want to see that you have an emergency fund to get through months when you’re not earning as much. But again, that doesn’t mean self-employed borrowers are held to a higher threshold. “Compensating factors are going to help any borrower,” says Moore.
Significant down payment. A hefty down payment of 20% or more can offer more assurance to lenders, but down payment requirements for self-employed workers with good credit and enough income are usually no different from other borrowers. However, a larger down payment can be helpful. “Putting more money down will help your DTI ratio,” says Cahan. But if the loan is not likely to be approved because of other challenges, a larger down payment probably won’t tip the scales to an approval.
Document Requirements for a Mortgage When You’re Self-Employed
Lenders require complete financial documentation for a mortgage application. When you’re self-employed, you’ll need to provide both business and personal financial documents. Many lenders will require income verification early in the mortgage timeline and then again just before closing. Although requirements will vary by lender, be prepared to submit:
Government-issued identification.
Complete personal tax returns for two years.
Business tax returns for two years.
IRS Form 4506-T, which gives third parties permission to access your tax records.
Earnings statements.
Business and personal bank statements.
Asset account statements, such as retirement or investment accounts.
Business name verification.
Business license.
List of your debts and expenses, both business and personal.
Canceled checks for your rent or mortgage.
Any additional income, such as Social Security or disability.
Some lenders may require further documentation, such as statements from your accountant and clients. Be sure your documents are up to date and organized before you submit.
Mortgages backed by government-sponsored enterprises Fannie Mae and Freddie Mac require verification of business operations, so you may need to provide evidence of work, such as invoices, business payments or active websites. These measures are normally required 120 days before closing on a mortgage, but self-employed borrowers may have to offer proof of steady income again as the closing date approaches.
How to Plan for a Mortgage When You’re Self-Employed
If you’re self-employed and considering a home purchase in the next few years, take these steps to make yourself a more attractive borrower:
Establish a track record of self-employment work. Maintain consistent work as much as possible. Try to time your mortgage application after two to three years of consistently strong earnings. At that point, lenders are less likely to be concerned about income instability, and you may qualify for a higher loan amount.
Improve your credit. Check your credit report to identify any problems you may need to fix before a mortgage lender pulls your credit. Lenders may reject your application or charge you a higher interest rate if you have a low credit score, so contact the credit bureau to correct any errors you find. Look for other concerns, such as high credit limit use, and work to improve those areas.
Pause other credit activity. Do not apply for other loans or credit cards in the months leading up to your mortgage application, as this will harm your credit rating.
Pay down debt. You can boost your credit score by paying off some or all of your debt. This will also lower your DTI, which will make getting a mortgage easier.
Save as much as possible. Don’t drain your savings on the down payment. A healthy emergency fund can put lenders at ease; they like knowing that you can still make payments during work droughts or that you can afford surprise home repairs.
Maintain clean business records. Make it easier for lenders to understand your business income. Separate your business and personal finances by using business checking and savings accounts as well as credit cards. Keep track of invoices and monthly expenses, and create an updated earnings statement at least quarterly. Be sure to retain your records when you file taxes each year.
Don’t believe the misconceptions. Though there may be more paperwork, lenders are open to working with self-employed borrowers. “We look at each individual based on their entire financial picture,” says Moore.
Types of Self-Employed Home Loans
If you’re self-employed, you can explore the same mortgage programs as others – including conventional loans, Federal Housing Administration loans, Veterans Affairs loans and U.S. Department of Agriculture loans. You’ll still need to meet each program’s criteria in order to qualify, as well as provide any additional documentation related to your self-employed status.
What If You Don’t Qualify?
If you’ve only been in business a short while or have a past line of work that doesn’t qualify as related to your current business, you might consider an alternative loan program called a nonqualified mortgage. Because these loans do not follow government guidelines as a qualified mortgage does, a non-QM offers more leeway when it comes to underwriting them for business owners.
In order to make a non-QM mortgage work, you’ll likely need a large down payment and may have higher interest rates or fees than standard home loans. Because you don’t have two years of business tax returns, lenders will look at your bank statements instead to get a sense of your cash flow. Using those documents, they can determine how much income you have coming in on a regular basis. Once you eventually have enough business history to qualify for a regular mortgage, you might try refinancing your non-QM loan.
However, be sure to work with a reputable lender if you decide to pursue a non-QM loan, since these aren’t as regulated as traditional home loans.
Every seller wants to get their house sold quickly, for as much money as they can, with as few headaches as possible. And chances are, you’re no different.
But did you know one of the biggest things that could jeopardize your success is the asking price for your home? Pricing your house correctly is one of the most crucial steps in the selling process.
So, how do you know if you’re missing the mark? Here are four signs your high asking price might be turning potential buyers away—and why leaning on your real estate agent is the best way to course correct.
1. You’re Not Getting Many Showings or Offers
One of the most obvious signs your house may be overpriced is a lack of showings. If it’s been on the market for several weeks and only a few buyers have come to see it—or worse, you haven’t gotten any offers—it could be a clear indication the price isn’t matching up with what buyers expect. Because buyers who have been looking for a while can easily spot (and write off) a home that seems overpriced.
Your real estate agent will coach you through this, so lean on their experience for what you may want to try to bring more buyers in, including considering a price cut.
2. Buyers Have Consistent Negative Feedback after Showings
And if after the showings you do have, comments from the potential buyers aren’t great, you may need to course correct. Feedback from showings is an important part of understanding how buyers see your house. If they consistently say it’s overpriced compared to other homes they’ve seen, it’s time to reconsider your pricing strategy.
Your agent will gather and analyze this feedback for you, so you can look at how your house stacks up in the market. They can also suggest specific improvements or staging changes to better justify your asking price, or recommend one that aligns with today’s buyer expectations. As the National Association of Realtors (NAR) explains:
“Based on all the data gathered, agents may make adjustments to the initial price recommendation. This could involve adjusting for market conditions, property uniqueness, or other factors that may impact the property’s value.”
3. It’s Been on the Market for Too Long
And that lack of interest is ultimately going to lead to it sitting on the market without any serious bites. The longer it lingers, the more likely it is to raise red flags for buyers, who may wonder if something is wrong with it. Especially in today’s market with growing inventory, a long listing period means your house is stale – and that makes it even harder to sell.
Your real estate agent will be able to give you perspective on how quickly other homes in your area are selling and walk you through what’s working for other sellers. That way you can decide together if there’s something you want to do differently. As a Bankrate article says:
“Check with your agent about the average number of days homes spend on the market in your area. If your listing has been up significantly longer than average, that may be a sign to reduce the price.”
4. Your Neighbor’s House Sold Without an Issue
And here’s the last one to watch out for. If similar homes in your area are selling faster than yours, it’s a clear sign that something is off. This could be due to things like a lack of upgrades, outdated features, or a less desirable location. Or, it may be priced too high.
Your agent will keep you up to date on your competition and what changes, if any, you need to make your home more competitive. They’ll offer advice on small updates that could increase your home’s appeal or how to adjust your strategy to reflect the reality of the market today.
Bottom Line
Pricing a home correctly is both an art and a science. It requires a deep understanding of the market and buyer psychology. And when the price isn’t drawing in buyers, there’s no better resource than your agent on what you may want to do next.
When you buy a home as-is, you are assuming financial responsibility for the home in its current condition.
You can complete inspections and, if desired, cancel the contract within the inspection period without penalty.
Buying as-is is becoming more popular in today’s hot market and doesn’t necessarily signal issues with the home.
If you’re in the market to buy a home there’s a good chance you’ll come across a house being sold as-is during your buying journey. The term “as-is” indicates the owner’s desire to sell the property as it sits, making no repairs before closing.
While it could signal a red flag, this type of home sale is becoming a common transaction in today’s market, and in many cases could be a beneficial move for a buyer.
What Does Buying a House As-Is Mean?
Buying a house as-is means you purchase a home in its existing condition. There are different types of contracts sellers can use. One is the standard “repair limit” purchase and sale agreement, where the seller is required to fix any issues on the home totaling less than a specific amount before closing. The amount will vary depending on the contract and can be as little as $500 or as much as 1.5% of the purchase price.
The second type, the as-is contract, basically allows the buyer sole discretion to cancel the contract for any reason within the inspection period.
“With the as-is contract, the seller is not required to make any repair whatsoever, even if something is found in an inspection,” says Marcia Socas, a broker with Castro Realty Group in Orlando, Florida.
By allowing a buyer to withdraw their offer during the inspection period without penalty, gives buyers more flexibility and an easier exit.
What Types of Homes Are Typically Sold As-Is?
Bank foreclosures and other distressed properties in need of major repairs are exclusively sold as-is. Since as-is contracts were used with distressed homes in the wake of the Great Recession, many people believe homes being sold as-is need a lot of work.
“However, that’s shifted over the years. Now, it’s the standard way of selling regardless of home condition,” says Socas.
There are a few reasons a seller will sell as-is even if their home is in good condition.
The seller needs to sell quickly for relocation or other purpose.
It’s an inherited property and the heirs don’t want to deal with repairs to sell it.
There’s a divorce or other legal motivation.
The seller wants to get more competitive bids in a hot market.
Selling as-is more of an indication of the market and the fact that the owner would prefer not to make repairs, says Scott Beloian, broker and owner of Westcoe Realtors in Riverside, California.
“If it’s a completely hot seller’s market, a lot of sellers will sell as-is. In a buyer’s market, it doesn’t happen a lot,” says Beloian.
How Does Buying a House As-Is Work?
“A lot of first-time homebuyers are scared when they hear as-is. They think they can’t have an inspection,” says Beloian. “However, you’re not buying it sight unseen. You can still do your inspections, ask for repairs and have time to decide if it’s the right home or not. As long as it’s within the inspection period, the buyer can walk away without repercussions.”
The as-is purchase offer contract is customizable.
“Contracts are fill-in-the-blank, where you can add in the desired inspection period,” says Socas. If it’s left blank, the inspection period goes to the default period for the state, which is typically 15 days, but can be longer. For example, in California the default inspection period for as-is contracts is 17 days, says Beloian.
In a seller’s market, Socas advises her clients to include a 10-day inspection period. However, if it’s extremely competitive, “sometimes we lower that inspection period to three days or even one day,” says Socas.
If the contract is accepted, the buyer places the earnest deposit money with the specified closing agent or title company. The seller relays all required disclosures about the home and the inspection period begins immediately.
The contract says buyers can cancel at the “buyer’s sole discretion.” If they discover they can’t get the financing terms they wanted, there are more repairs than anticipated on the inspection report or possibly a large, expensive issue is discovered with the home, they can cancel the contract without forfeiting the deposit so long as its within the inspection period.
If buyers cancel outside the inspection period, however, the earnest money deposit is forfeited to the seller, even with an as-is contract. If the buyer proceeds with the purchase, the closing continues as usual with a title company and the buyer assumes financial responsibility for the home’s condition as it sits at closing.
Does Buying a House As-Is Save Money?
For most, buying as-is doesn’t really save money, Socas says. Rather, she adds, “You have more flexibility with your options and have a more attractive offer with negotiating power.”
If the inspection report comes back and has something that needs to be addressed, you can still ask the seller to fix it with an as-is contract.
Since you and other potential future buyers can cancel without repercussions during the inspection period, a seller might be willing to negotiate so you don’t cancel the contract. This is especially true over something small or that regards safety, Socas explains.
Beloian says homes that need to be completely renovated can offer notable savings, but buyers will spend some or all of that savings on repairs to the home.
“A lot of times people can get a deal buying ‘borderline homes,’ where it’s not in complete disarray, is still financeable but needs some work,” says Beloian. “These can offer some savings, but in a tight market like we’re seeing today, these homes are few and far between.”
Who Is Buying a House As-Is Right For?
“Buying an as-is home can work for anyone as long as they understand the advantages and limitations of that type of contract,” says Socas.
Since you can cancel without reason within your inspection period, there isn’t a huge risk involved when making an offer. “But you are taking on more responsibility to repair the property after that period,” says Socas.
Pros of Buying a House As-Is
Buyers can cancel their contract within the inspection period for any reason without losing their deposit.
You can still conduct inspections and even ask for repairs, although the sellers aren’t required to agree to make them.
Using a short inspection period can help you have a stronger offer in a competitive market.
You potentially get a good deal on a home because it’s priced for its condition.
Cons to Buying a House As-Is
The home may need extensive repairs or be in uninhabitable condition.
The poor condition of the property might limit access to financing.
If you request repairs, the seller may deny them, leaving you financially responsible for repairs if you proceed.
You must cancel the contract in the inspection timeline or lose your earnest money deposit.
Source: real estate.usnews.com ~ By Liz Brumer-Smith ~ Image: Canva Pro
Each mortgage runs on its own timeline, but you might need about three to five months to secure a property and a home loan.
If you’re using a mortgage to buy a home, here’s what to expect from start to finish
Key Takeaways
The homebuying process can last about three to five months, but how long it ultimately takes depends on your unique situation.
The biggest variable in the mortgage timeline is finding a home to buy – and having your purchase offer accepted.
Once you’ve found a property and decided on a lender, loan processing and closing typically lasts about a month.
Borrowing a mortgage to finance your home purchase can be complex and confusing, especially if you’re a first-time homebuyer. Thankfully, having the right professionals in your corner can make the mortgage process easier to understand, so you can focus on finding a home you’ll be happy living in for years to come.
Here’s what the mortgage timeline usually involves, keeping in mind that delays can arise from factors outside of your control:
Securing a Mortgage Preapproval: Up to 45 Days
When you’re in the planning stage of getting a mortgage, it’s a good idea to check your finances and set a budget. Then, get preapproved to see how much you can borrow. Here’s what to expect during each step of this part:
Review your finances. Your financial standing influences whether you qualify for a mortgage, how much you can borrow and your lending terms. Lenders usually give the best loan terms to borrowers with credit scores in the mid-700s or above and debt-to-income ratios of around 45% or less.
“People are often surprised by their credit score because it’s being dragged down by something on their credit reports they had no idea about,” says Lindsay Barton Barrett, a licensed associate real estate broker with Douglas Elliman in New York. “That’s something you want to dig into.”
Create a budget. Setting a budget upfront is a good idea to avoid falling in love with a home you can’t afford. One rule of thumb says to spend 28% or less of your monthly income on your total housing payment.
If you bring home $7,000 a month before taxes, then you can spend up to $1,960 on your monthly mortgage payment. That amount should cover your principal, interest, taxes, mortgage insurance and homeowners insurance, plus any HOA fees.
“The biggest mistake is spending what you’re fully qualified for instead of what your budget allows,” says Nicole Rueth, senior vice president of The Rueth Team Powered by Movement Mortgage. “I’ve seen a lot of first-time homebuyers overspend.”
A mortgage calculator can help you figure out which homes you can buy, based on your estimated monthly budget and how much you’ll put down at closing. A lender may say you can borrow more based on your financial situation, but only you know what you’re comfortable paying every month while still meeting your other obligations.
Get pre-approved. Once you have a budget in mind, contact a lender and ask for a preapproval in that amount. You’ll save time if you have the necessary documents handy:
W-2 forms from the last two years.
Most recent pay stubs.
Copies of tax returns for the last two years.
Personal bank statements for the last two to three months.
Identification, such as a driver’s license.
The lender reviews these documents and pulls your credit report to determine whether you qualify for a home loan. It’s a good idea to keep your mortgage shopping within a 45-day window to reduce the impact to your credit score.
If everything checks out, the lender gives you a letter saying how much you can borrow. Most preapproval letters are valid for 60 to 90 days.
This letter not only helps you define your budget but also shows sellers you’re a serious buyer who has lined up financing. “In some markets, there are properties you can’t even see if you don’t have a preapproval letter,” Barton Barrett says.
Finding a Property and Making an Offer: 10 Weeks
Homebuyers typically view homes for 10 weeks before finding a property to buy, according to Freddie Mac.
The timeline for finding a property and making an offer vary with each homebuyer, but a real estate agent can help speed things along. The right agent will be familiar with homes in your market that are within your budget and guide you through the whole process.
“If you see a property and it’s not quite right, you can communicate what you liked and didn’t like to your agent, which will help guide your search,” Barton Barrett says. When that property closes, “Take note of what it listed for and what it closed for. That can help you set expectations.”
Once you find your dream home, you will work with your real estate agent to create an offer. This document includes a price, a suggested closing time frame – typically 30 to 90 days from the accepted offer – and conditions that allow you to cancel or renegotiate the contract. For example, you might make the offer contingent on mortgage financing and a satisfactory home inspection.
When you and the seller agree on price and terms, you will both sign a purchase agreement.
Applying for a Mortgage: One Week
Once you’ve had your purchase offer accepted and you’re under contract for the property you want, you can get official loan estimates from the lenders you got preapproved with. Compare their closing costs and interest rates, using the best offer to try to negotiate your loan terms because some lenders will match interest rates or offer discounts.
You could save thousands of dollars just by doing this. For instance, if you buy a $400,000 home and put down 10%, you save $117 a month with a 6% interest rate compared with 6.5%. This adds up to over $9,000 in interest savings over the first five years of the loan.
Once you’ve found the right lender, tell the loan officer that you’d like to move forward with the mortgage application. This is called your “intent to proceed.” At this point, you’ll be able to lock in your interest rate and purchase mortgage discount points to buy down your rate
Underwriting and Loan Processing: Three to Four Weeks
The underwriting phase starts as soon as you’ve signed a purchase agreement and applied for a mortgage. This part varies from a few days to a couple of weeks, according to loan software firm ICE Mortgage Technology. The timeline depends on how busy the underwriters are and how quickly you answer questions and submit documents.
Here’s what to expect during loan processing:
Review documents. Your lender will send your mortgage application to the underwriting department to review all of your supporting documents. Underwriters confirm that you meet eligibility requirements for the mortgage, make sure your income and employment are stable, and check that you have money for closing costs and a down payment. Respond quickly to questions and requests for additional documents, such as a letter that explains the source of a large bank deposit, to keep your closing date on track.
Order a home inspection. If your purchase offer includes a home inspection contingency, you will hire a professional to check the home’s physical attributes, mechanical systems and major appliances.
“A home inspection is so critical to understanding what you’re buying,” Rueth says. “They are getting in the crawl spaces and up in the attic and the roof, and looking at the electrical panels. They are really looking at the bones of that home.”
Based on the walk-through, the inspector creates a report that lists any problems. Depending on the terms of your contract, you may be able to walk away from the purchase if the report reveals significant damage you don’t want to deal with.
Get a home appraisal. Your lender will order an appraisal to verify the home’s value, which is based on its condition and selling prices of similar homes in the area. Lenders do this to ensure they can sell the home and recoup their investment if you default on the loan.
If the appraised value of the home is higher than the selling price, then that means you’ve found a good deal. But the reverse could create problems because the bank won’t lend more than the appraised value of a property. In that case, you have a few options, including:
Pay the difference in price yourself, although it may be risky if the home isn’t worth the selling price.
Negotiate with the seller to lower the home price.
Walk away from the deal, depending on the terms of your contract.
Complete a title search. During the title search, a title company or attorney researches public records to confirm the property’s legal owner and ensure it has no pending claims or liens. Title insurance is a policy you can buy to protect against future claims on the property. You’ll be required to buy lender’s title insurance, but an owner’s policy is optional.
Closing on the Property: One Week
If your finances and the property you’re buying meet the lender’s underwriting requirements, you will be “cleared to close” on the mortgage. You have only a few days to go until you sign the mortgage agreement and get the keys to the home.
Your lender should send you a closing disclosure, which is a five-page document that sums up the terms of your loan and what you will pay at closing. You’ll have at least three days to review this document and compare the numbers to the loan estimate. You shouldn’t find significant changes between these two documents unless there’s a legitimate reason or you’ve agreed to certain changes.
You’ll be responsible for choosing a closing agent to gather the legal documents for your loan and handle the money for the purchase. Once you schedule the closing, ask your closing agent what to bring. This usually includes a valid ID and your cash to close payment, typically a cashier’s check.
On closing day, you will go for a final walk-through of the house with your real estate agent to make sure the seller addressed repairs and to check for new damage. Then, you’ll sign the final sales contract at closing.
After Closing on the Mortgage
Now that you’ve settled into your home, you’re on a new timeline: making mortgage payments for the life of the loan. To protect against future financial problems, work on stashing away about six months’ worth of mortgage payments in a savings account, Rueth says.
“When you’re late on your mortgage, it can really affect your credit score for a long time,” Rueth says.
Your lender or loan servicer can declare your loan in default, the first step in the foreclosure process, if you’re behind.
Your savings can help you through financial emergencies, but you will also need it to maintain and repair your home.
Source: money.usnews.com ~ By: Kim Porter ~ Chart: US News & World Report
