Category: Buying a Home

Posted on

7 Tips for First-Time Homebuyers

7 Tips for First-Time Homebuyers

Buying your first home can be exciting—and stressful. Beyond the challenge of finding the right home in your chosen neighborhood, many financial questions are sure to arise. With advance planning—and saving—the homebuying process will be much easier.

Our top tips:

  1. Don’t buy a home primarily as an investment. You can’t rely on home values always rising. If financial return is your primary goal, plan to own a property for at least five years.
  2. Know what you can afford. Use a mortgage calculator to figure out how much you can borrow based on your income and financial obligations. As a rule, keep your housing costs below 31–40 percent of your gross monthly income.
  3. Check your credit score. Having a better credit score can mean lower mortgage rates. Take steps to boost your score before you start house hunting.
  4. Understand the other costs involved.
    • Plan to pay property taxes and carry homeowner’s insurance.
    • A home inspection can help you plan for major repairs and routine maintenance.
    • A condo or home in a community that offers shared facilities like a pool may have monthly association fees.
    • Closing costs can be between 1.5-5 percent of the purchase price. These include mortgage applications, appraisal, transfer of property fees, and government recording fees. California is an escrow state, which means that funds are held by a third party to cover property taxes and insurance.
  5. Save for a down payment. For a conventional loan in California, a minimum down payment is 3% of the home price. However, the average down payment is 13%. Ideally, plan to put down at least 20% of your mortgage. Otherwise, you will have to pay private mortgage insurance (PMI) premiums on top of your mortgage payments until your Debt-to-Income (DTI) Ratio reaches 80%. The larger your down payment, the easier it will be to qualify for a mortgage and negotiate the lowest rate. Plus, when sellers review multiple offers, the more you put down, the more competitive your offer will be with other bids.
  6. Know what documents you need for your loan. Commonly requested loan documents include a fully executed agreement of sale for the property being purchased, bank and brokerage account statements, pay stubs, previous W2s, IRS Form 4506 (which authorizes a mortgage lender to obtain copies of your tax returns from the IRS), and homeowners’ insurance policies.
  7. Get pre-approved for a mortgage. Get a preapproval letter from a competitive mortgage broker that specifies how much a lender is willing to lend you and locks in the rate. This lets real estate agents and sellers know that you’re a serious buyer because your financing is already arranged. In competitive markets, many realtors now ask for a preapproval letter before showing any properties or entering a contract with a buyer.

Additional resources:

Source:

Posted on

Top 10 Mortgage and Home-Buying Myths & Truths

Mortgage and Home-Buying Myths & Truths

Buying a home is usually the biggest purchase people make, and the path to arriving at the right decision is often daunting. This is because even a slight oversight may lead to negative consequences in the future. To make matters even more complicated, prospective homebuyers have to find their way around various home buying myths.

While family and friends offer well-meaning advice, with some even suggesting that buying a house is a waste of money, bear in mind that not all you hear about buying a home might be true. Real estate agents and mortgage providers do what they can when it comes to debunking home buying myths, and most experts from this realm mention having to deal with similar misconceptions.

1. Renting is Cheaper Than Buying

Whether it’s cheaper to buy a home than continue living on rent depends on where you live. According to a report released by Realtor.com, buying a home in January 2020 was as affordable as renting, if not more, in 15 of the country’s 50 largest metros. Bear in mind that this only highlights the monthly costs involved in buying a home and living on rent. While the rent you pay is never coming back, your mortgage payments help you build equity in your home.

2. You Start the Process by Looking for a Home

One of the top myths about buying a home is that you need to start the process by looking for a suitable property. However, this might not be in your best interest because you may set your mind on a house, only to find out you do not qualify for the required mortgage amount. In this case, you’ll need to begin the house-hunting process again, already having wasted valuable time.

Ideally, you should begin the home buying process by ensuring that your finances and your credit score are in order. Then, you seek preapproval for a mortgage. Once you know how much you qualify for, look for homes accordingly.

3. Preapproval Comes with a Guarantee

Unfortunately, getting preapproved for a mortgage does not guarantee that a lender will approve your loan. For example, if your employment status changes after you receive preapproval, a lender might reconsider your application. This is also the case if there’s a change in your income or overall financial situation. While lenders review your creditworthiness before granting preapproval, they do so during the final underwriting as well.

4. A 20% Down Payment is Necessary

When it comes to the most commonly spread home buying myths, this one probably takes the cake. Sure, making a 20% down payment is a good idea. However, you may qualify for different types of mortgages by paying less than 20% upfront. When it comes to how much down payment you need, it boils down to your specific situation and the type of mortgage you’re after.

    • Conventional mortgage. You need to pay 5% to 15% as down payment, and you also need to account for private mortgage insurance (PMI).
    • S. Department of Veterans Affairs (VA) loan. Eligible applicants don’t need to make any down payment.
    • S. Department of Agriculture (USDA) loan. If you qualify, you may choose to make no down payment at all.
    • Federal Housing Administration (FHA) loan. These loans come with a minimum down payment requirement of 3.5%.
    • Jumbo loans. Down payment for these loans can be as low as 10%.

In addition, first-time homebuyers should ideally check if they qualify for any down payment assistance programs run by state and local government agencies.

5. People With Poor Credit Cannot Buy Homes

There is no minimum credit score that will disqualify you from buying a home, although the lower it is, the more difficult it becomes to find a mortgage. If you’re looking for a conventional loan, your credit score should ideally be over 620. However, people with slightly lower scores who have high incomes or are willing to make large down payments might also qualify.

When it comes to FHA loans, people with credit scores of over 580 may qualify if they meet a few other eligibility criteria. This is also usually the case with VA loans. If you wish to get a USDA loan, know that most lenders require scores of 640 or higher.

6. People With Student Loans Cannot Get Mortgages

Whether or not people who have student loans may qualify for mortgages depends on their specific situations. For example, if you’ve been making all your payments on time, have a low debt-to-income ratio, and have a good credit score, you might find it easy to qualify for a mortgage. However, the reverse holds true as well.

If you have a student loan, make sure you look at your DTI before applying for a mortgage. You should ideally try to get it to less than 36%, although some lenders consider applicants with DTIs as high as 43%. The lower it gets, the better.

7. The Down Payment is the Only Upfront Cost

Your down payment accounts for a major chunk of the money you need to pay upfront, but you need to account for other costs as well. As a buyer, you are also responsible to cover your loan’s closing costs. Closing costs may vary from 3% to 6% of a home’s selling price, and the state in which you purchase a home also has a bearing on how much you need to pay.

8. Your Mortgage is Your Only Expense as a Homeowner

One of the key facts about buying a house is that you need to account for more than just your monthly mortgage payment.  For example, you need to pay property taxes that vary based on where you reside. If you get a conventional mortgage and your down payment is less than 20%, you need to pay extra for private mortgage insurance (PMI).  Buying a house also requires paying homeowners insurance, which, according to Policygenius, averages at $1,899 per year.

As a homeowner, you’re responsible for your home’s ongoing maintenance.  In this case, you may expect to spend around 1% to 2% of the home’s buying price each year. Depending on where you buy a home, you might also need to pay homeowners’ association (HOA) or condominium association fees.

9. A 30-Year Fixed-Rate Mortgage is the Best

While 30-year fixed-rate mortgages find several takers, they don’t work equally well for everyone, which is why this is among the top mortgage myths. Bear in mind that you get several alternatives from which to choose. These include adjustable-rate mortgages, balloon mortgages, interest-only mortgages, as well as 10-. 15- and 20-year fixed-rate mortgages.

People who opt for 30-year fixed-rate mortgages do so because of two basic reasons. First, the interest rate remains the same over the course of the loan term, so there’s no variation in monthly payments. In addition, the monthly payments of a 30-year mortgage are noticeably lower than that of a 10- or 20-year mortgage.  However, the interest you end up paying for a 30-year mortgage will be significantly higher than that of a 15-year mortgage.

The mortgage that works best for you depends on your financial situation as well as the duration you plan to stay in the house you purchase. Consequently, it’s ideal that you learn about the effect of interest rates and loan terms on mortgages before making a decision.

10. Select the Lender With the Lowest Interest Rate

Interest rates play a key role in deciding which mortgage provider to select, but there are other factors to consider as well. For instance, a lender might offer a low interest rate and make up for the same by charging steep fees. When you’re comparing lenders, you should stick to looking at the annual percentage rate (APR) because it gives you an indication of how much you’ll end up paying as interest and fees combined.

Given that paying off a mortgage is typically a long-drawn affair, it’s important to look at the level of customer service a lender provides. Selecting the right mortgage provider also requires looking at flexibility in terms, which may come in the form of weekly/biweekly/monthly payments, payment pauses, and redraw facilities.

11. Interest Rate Are Increasing

This makes it to the list of myths about home ownership because although interest rates increased significantly in 2022, one needs to look at the bigger picture. For instance, 30-year fixed-rate mortgages came with interest rates of around or over 7% during the 1990s, and stood largely above 6% before the Great Recession (2007 to 2009).

In addition, while the average interest rate for a 30-year fixed-rate mortgage peaked at 7.08% in October and November 2022, it dropped to 6.09% in the week ending on February 1, 2023. Most experts predict that this number may vary from 5.5% to 6% for the rest of the year.

12. Buying a Fixer-Upper Saves Money

If you think you might be able to save money by buying a home that is a bad shape and fixing it on your own, you might want to give your decision some serious thought. For starters, you should have some knowledge about construction and making renovations, as well as the required skills and tools.

What attracts homebuyers to fixer-uppers is that they get the opportunity to spend less upfront. However, you need to account for the money you’ll need to spend on repairs and renovations, because the total cost may exceed the cost of a comparable home that’s ready to move in soon after the purchase.

13. There’s No Need for Professional Home Inspections

This is one of those home buying myths that might end up costing you a tidy sum in the long run. Even if you think another prospective buyer might beat you to the finishing line by choosing to skip the home inspection stage, it’s best to err on the side of caution. Remember that checking a home on your home is not the same as getting a professional to carry out the process.

While a professional home inspection comes at a cost, it may help you save money in the long run or even steer clear of making a bad decision. The American Society of Home Inspectors (ASHI) Standard of Practice indicates that a home inspection involves checking a home’s:

    • Interior
    • Exterior
    • Structural system
    • Roof system
    • Plumbing system
    • Electrical system

14. You Should Buy a Home During the Spring Season

Sure, the real estate industry is typically buzzing with activity during the spring season, but this does not mean you need to restrict yourself to buying a home during this period. Besides, the truth about buying a house is that you don’t really have to wait for the perfect time to move forward.

Looking to Purchase a Home on Long IslandContact Us

While the spring season usually sees more real estate transactions than other periods, high competition may leave little room for negotiation. The fall, on the other hand, usually brings with it a fair amount of inventory along with reduced competition. This means you may land a good deal even if you choose to buy a home in the fall.

15. Schools Don’t Play a Role if You Don’t Have Children

Prospective homebuyers who don’t have children might have heard that there’s no need to pay attention to schools. However, there’s more to schools in a neighborhood than just educating children. This is because the presence of good schools is typically an indication of good neighborhoods. Besides, homes in reputable school districts tend to have higher values, and they usually manage to find takers even the real estate market is down.

Conclusion

Debunking home buying myths is crucial because there is no dearth of prospective homebuyers who approach the process with various misconceptions. For example, while some might lead you to believe you’re better off as a renter, you might actually benefit by buying a home instead.

More often than not, working with a realtor or a real estate agency is ideal. This is because you then have a professional doing all the groundwork for you as well as someone you may turn to for advice. Once you decide you wish to buy a home, it’s also important to find a suitable lender and get preapproval. This way, you know just how much money you may get in the form of a loan.

Posted on

What to Consider Before Buying a Rental Property

Buying a Rental Property

If you’re thinking of buying a rental property, it’s time to become familiar with all of the quirks of investing in real estate.

Key Takeaways:

    • Renting out property seems like an easy way to make money, but many things can complicate the process.
    • Get up to speed on tenant-landlord laws so you don’t violate any legal rules.
    • Keep a cash reserve on hand for surprise expenses. This isn’t a side business you should be running paycheck to paycheck.

You know why you want to invest in a rental property. You envision making passive income, raking in the dough, as your tenants pay you every month. It’s a smart goal, and you certainly can make money as a real estate investor, but as anyone will tell you, it isn’t exactly passive, easy or cheap. You have to spend money before you make money, and you’ll have to spend money while you’re making it, too.

Still, if you’re thinking of buying a rental property, it’s time to become familiar with all of the quirks of investing in real estate.

If you’re looking at buying a rental property, be sure to consider these things first:

  • Know your costs.
  • Have a great real estate lawyer.
  • Make sure your property isn’t subject to rental restrictions.
  • Be mindful of surprise costs.
  • Understand what being a landlord really means.
  • Don’t assume hiring a property manager is a perfect solution.
  • Prepare for your rental to sit vacant.
  • Make sure you have plenty of cash reserves.

Whether you’re buying a house, an apartment building, a condo, a townhouse or whatever piece of property you’re zeroing in on, it’s important to purchase a rental property you can comfortably afford. But many first-time investors don’t realize what they’re getting into. There are the closing costs, which can’t always be financed. There may be a hefty down payment. There’s the monthly mortgage. You need to determine what the rent is going to be. This is all just for starters.

The rent amount can take a while to determine. “Many investors subscribe to the 1% rule, which suggests that monthly rent should be roughly 1% of the property’s purchase price. That would mean a $200,000 home should rent for roughly $2,000 per month,” says Debbie Fales, communications and marketing manager for Navigator Private Capital, a real estate lender in Annapolis, Maryland.

“While this might be a helpful rule of thumb, it’s rarely that simple,” Fales says. “We suggest diving deeper into listing aggregators like Apartments.com or Rent.com and comparing similar properties to find the going rental rate.”

Paul Dashevsky is a Los Angeles-based real estate investor and the co-CEO of GreatBuildz.com, a service that matches homeowners with general contractors, and co-CEO of MaxableSpace.com, which builds and manages guest homes and other tiny house projects.

He advises: “Don’t buy based on emotion and don’t overpay. You’re not living in this home, so the only important metric is what your net revenue will be.”

Nicole Rueth, founder of The Rueth Team, a mortgage lender in Englewood, Colorado, says, “Run the numbers like a business. Higher prices are here to stay, so instead of waiting for prices to drop, find the properties that cash flow with a little creativity. They’re out there; I know because I’m helping investors find them.”

But she warns, “If it doesn’t cash flow on paper, don’t buy it.”

Rueth says too many novice investors get caught up in making the home a little too perfect before renting it out. That’s admirable to be conscientious, but it could financially wipe you out if you’re not careful.

“Remember, you don’t live there. Renovate to your market, not your tastes. You’re not moving in,” she says. “If it makes you money, it’s pretty enough.”

You’ll want a skilled real estate attorney reviewing your contract with the entity you’re purchasing from, as well as when the one you’re drafting for your tenants. Every state has its own approach to the landlord-tenant relationship, and you don’t want to be be a landlord who breaks a bunch of laws. There are plenty of ways you can violate the law, too, from charging too high of a security deposit to not making necessary repairs in a timely manner.

But a good lawyer is just the start.

“Build your A-team,” Rueth says. “Lenders, agents, handymen, CPA and property managers are critical to not only a successful rental but a scalable business.”

Homes that belong to a homeowners association, also known as an HOA, can be challenging to rent out, says Dashevsky.

“If your property is in an HOA, you have little control of the association costs and how they might increase over time,” he says. This means HOA costs could affect what rent you charge your tenant or wreck your profit margin.

“Also,” Dashevsky says, “your tenant could run afoul of the HOA rules.”

Dashevsky isn’t a fan of renting out a home with a swimming pool. Sure, you can charge more, but only in theory, according to Dashevsky. “I find that you don’t get an increase in rent for a home with a pool,” he says.

He also doesn’t like what a pool will do to your insurance, and then there’s the cost of maintaining the pool that you have to think about.

Surprise costs can slash your profits and, in some cases, exceed them. These can range from rising property taxes to the cost of maintenance and repairs.

“It’s hard to expect the unexpected,” Fales says. Yet you need to do just that when you rent property.

“So it pays to secure rental property insurance, commonly referred to as a landlord policy,” Fales says.

She also recommends putting aside money for maintenance, regular things you know you’ll probably have to pay for, like maybe an exterminator or a lawn mowing service, to surprise maintenance costs, like a plumber or a roofer.

“And, of course, you should have a fair idea of utility costs and energy usage before you pull the trigger,” Fales says.

Becoming a landlord doesn’t just mean taking on the expense of maintaining a rental property. It also means having to be available at all times and deal with tenant issues as they arise. If there’s a plumbing, heating or cooling problem, for instance, you’ve got to promptly fix it – or hire someone to. You’re potentially on call, 24/7.

If that excites you, and it may, especially if you’re good at making repairs or a real people person, then you have nothing to worry about.

It’s certainly possible to minimize your work as a landlord by hiring a property manager to oversee your rental. But there are pros and cons to such a move.

“Property managers just don’t have the same incentive as you to manage the property at its highest efficiency,” Dashevsky says. “If possible, manage the property yourself.”

But Rueth says, “Don’t assume self-managing saves you money. If managing tenants stresses you out, costs you time or makes you hate investing, you’re paying a price either way. Know your strengths and hire for the rest.”

When it comes to making money on a rental, a lot of the financial upside you see is apt to come in the form of property appreciation. But you’ll still need to cover your costs along the way, and even when there’s demand for housing, you still could find that your property isn’t always going to be rented out.

“For a rental investment to pay off, you need tenants,” Fales says. “So you’ll want to consider the housing supply in the area in relation to the estimated demand. You want your estimated vacancy rate to be as low as possible, but it should also be based in reality. We advise clients to take advantage of public data by consulting the U.S. Census Bureau, where they list vacancy rates by region.” (You can find that information here.)

Dashevsky has a suggestion, especially if you find your properties are sometimes vacant.

“Rent your property slightly under market, like $50 to $100 under the peak market rent you believe is the right price. It’s not a large amount to lose every month, and it will get your unit occupied faster,” Dashevsky says. This will mean more rental income, he adds, and you’ll increase your odds of the tenant staying longer, which also will mean additional steady rental income.

Because owning a rental property can cost more than expected, and you can have those surprise costs mentioned earlier, it’s important to have plenty of cash reserves on hand to cover any expenses as they arise. You might have to pay for a sudden repair, or you might end up with an apartment that remains vacant for a few months until a major issue is resolved.

Or, hey, maybe it’ll all happen at once.

“Don’t underestimate reserves,” Rueth says. “A water heater, roof leak or tenant turnover will eat your profits if you didn’t plan for it.”

Having a solid financial cushion in the bank can help you avoid cash flow issues when unexpected situations arise. And it might buy you more peace of mind. That said, when you own a rental property, while you can certainly become rich – that’s why renting properties is a thing – there really are endless opportunities for something to go wrong, and you’ll need to come to terms with that before taking the leap.

Source: realestate.usnews.com ~ By Geoff Williams ~ Image: Canva Pro

Posted on

Is It Better To Rent or Buy a Home?

Is It Better To Rent or Buy a Home?

You’ve probably asked yourself lately: Is it even worth trying to buy a home right now?

With high home prices and stubborn mortgage rates, renting can seem like the safer choice right now. Or maybe your only choice. That’s a very real feeling. And perhaps buying today isn’t your best move; it’s not for everyone right away. You should only buy a home when you’re ready and able to do it, and if the timing is right for you.

But here’s the thing you need to know about renting.

While it may feel like a safer bet today – and in some areas might even be less expensive month-to-month than owning – it can really cost you more over time.

In fact, a recent Bank of America survey found that 70% of aspiring homeowners worry about what long-term renting means for their future. And they’re not wrong.

Owning a home may seem way out of reach, but if you make a plan now and steadily work toward it, homeownership comes with serious long-term financial benefits.

Homeownership Builds Wealth Over Time

Buying a home isn’t just about having a place to live – it’s a step toward building your future wealth.

Why? Home prices typically rise over time, which means the longer you wait, the more expensive it is to buy. And even in some markets where home prices are softening today, the overall long-term trend speaks for itself (see graph below):

a graph of a price of houses sold in the united statesAnd as home values rise, so does your equity when you’re a homeowner. That’s the difference between what your home is worth and what you owe. So, with every mortgage payment, that equity grows. Over time, that becomes part of your net worth.

Today, the average homeowner’s net worth is nearly 40X greater than that of a renter. That’s a shocking difference, and the dollars in the visual below don’t lie (see graph below):

a green rectangle with white textAnd it’s one of the big reasons why Forbes says:

“While renting might seem like [the] less stressful option . . . owning a home is still a cornerstone of the American dream and a proven strategy for building long-term wealth.”

The Biggest Downside of Renting

So, short-term, why does renting feel like a simpler choice? Lower monthly payments, less responsibility, no strings attached. But long-term? It can sting.

For decades, while home prices have been rising, rent has gone up too. And while rent has held rather steady more recently, history shows the overall trend is up and to the right. That makes saving for a home more complicated than ever (see graph below):

a graph of a number of peopleThat kind of financial uncertainty has a real impact. In the same Bank of America survey, 72% of potential buyers said they worry rising rent could affect their current and long-term finances.

Because rent doesn’t build wealth. It doesn’t come back to you later. It pays your landlord’s mortgage – not yours.

So, whether you rent or own, you’re paying a mortgage. The question is: whose mortgage do you want to pay?

Renting vs. Buying: What Really Matters

Think of it this way. Renting means your money is gone once you pay it. Owning means your payment builds equity – like a savings account you can live in. Sure, buying comes with responsibility. But it also comes with the kind of reward that grows over time. And that’s why you need a solid plan to get there.

As Joel Berner, Senior Economist at Realtor.com, explains:

“Households working on their budget will find it much easier to continue to rent than to go through the expenses of homeownership. However, they need to consider the equity and generational wealth they can build up by owning a home that they can’t by renting it. In the long run, buying a home may be a better investment even if the short-run costs seem prohibitive.”

Bottom Line

Renting may feel more do-able today. But over time, it could cost you more – without helping you build anything for your future.

If homeownership feels out of reach today, you’re not alone. And the first step toward getting out of the rental trap is to set a plan. Connect with an agent to set your specific goals and explore your options – so you’re ready when the time is right.

Source: keepingcurrentmatters.com ~ Image: Canva  Pro

Posted on

What Is Escrow? How It Keeps Homebuyers and Sellers Safe

How Escrow Keeps Homebuyers and Sellers Safe

An escrow account is a secure holding area for money and documents during a real estate transaction. It protects buyers, sellers, and lenders by ensuring no funds or titles change hands until all terms of the sale are met.

Escrow might sound complicated, but it’s one of the most important safeguards during the homebuying process.

Here’s a breakdown of how escrow works, who manages it, and how it protects both sides of the deal.

What is escrow in real estate?

In real estate, escrow is a legal arrangement where a neutral third party (usually an escrow officer or company) holds important items until the deal officially closes. These items can include the earnest money deposit, the signed purchase agreement, and other transaction documents.

The escrow process ensures that neither the buyer nor the seller is at risk of losing money or ownership if the other party doesn’t fulfill their part of the contract.

How escrow works during a home sale

The escrow agent is often someone from the real estate closing company, an attorney, or a title search company agent (customs vary by state), says Andy Prasky, a real estate professional with Re/Max Advantage Plus in Twin Cities.

Your agent will

  • Hold the buyer’s earnest money deposit in a secure escrow account

  • Collect documents from both parties, such as disclosures and inspection reports

  • Ensure all contract conditions are met (e.g., home inspection, loan approval)

  • Disburse funds and finalize the sale once all contingencies are cleared

Once all conditions are met and the transaction is finalized, the escrow officer will record the title transfer, release the funds to the seller, and the buyer will receive ownership of the home.

What does escrow cost?

Escrow fees typically range from 1% to 2% of the home’s purchase price, but the total cost can vary based on location and the complexity of the transaction.

Who pays the escrow fee—the buyer, the seller, or both—depends on your purchase agreement and local customs.

What is earnest money, and how is it used?

Earnest money—also known as an escrow deposit—is a dollar amount buyers put into an escrow account after a seller accepts their offer. The escrow company holds the money in an escrow account for the duration of the transaction.

Another way to think of it is as a “good-faith” deposit into an escrow account, which will compensate the seller if the buyer breaches the contract and fails to close.

Can you borrow earnest money from a lender?

Most homebuyers come up with cash for escrow and deposit it into the escrow account from their own funds. The payment amount is small compared with the cost of the home and the loan, and the homebuyers might not even have a mortgage lender yet when they make an offer on a home.

However, earnest money can be borrowed from your lender, but certain rules apply. First-time buyers are most likely to need to go to their mortgage lender to make this escrow account deposit. Your lender will ultimately count the deposit toward closing costs and the down payment on the house.

How escrow protects buyers and sellers

Escrow might seem like a pain, but here’s how it can work in your favor.

For homebuyers

Let’s say, for example, the buyer had a home inspection contingency and discovered that the roof needed repairs. The seller agrees to fix the roof. However, during the buyer’s final walk-through, she finds that the roof hasn’t been repaired as expected. In this case, the seller won’t see a dime of the buyer’s money until the roof is fixed. Talk about a nice safeguard!

For home sellers

Sellers benefit from escrow, too. Let’s say the buyers get cold feet at the last minute and bail on the transaction. This might be disappointing to the seller, but at the very least, buyers have typically ponied up a sizable chunk of change for their earnest money deposit. This money, often totaling 1% to 2% of the purchase price of a home, has been held in escrow. When buyers back out with no legitimate reason, they forfeit that money to the seller—a decent consolation for the sale’s failure and the expense of making mortgage payments and other expenses while the home was off the market.

What is an escrow account for a mortgage?

After you buy a home, your mortgage lender may set up an escrow account to pay future property-related expenses like the following:

Each month, a portion of your mortgage payment is deposited into this escrow account. When tax or insurance bills come due, your lender pays them directly using funds from that account.

If you overpay into escrow, you may get a refund check and see a reduction in your monthly payment. If costs increase, your lender might raise your mortgage payments to cover the difference.

Why escrow matters

Escrow is a safety net in real estate. It ensures that everyone involved (buyer, seller, and lender) has their interests protected, and that money and ownership change hands only when everything is in order.

Whether you’re navigating earnest money, closing costs, or a mortgage escrow account, understanding how this process works can save you stress—and money—during one of the most important financial decisions of your life.

Source: realtor.com ~ By Cathie Ericson ~ Image: Dale Taylor/iStock

Posted on

Is a 15-or 30-Year Mortgage Right for You?

Is a 15- or 30-Year Mortgage Right for You?

You can build equity faster with a shorter term since more of your payment goes toward paying down principal.

Takeaways

    • When choosing a mortgage, two main options is a 30-year term and a 15-year term, though some lenders have additional options.
    • A longer-term mortgage will usually mean lower monthly payments, but a higher cost over the life of the loan; a shorter-term mortgage will reduce the overall loan cost and may have a lower interest rate, but will require higher monthly payments.
    • No matter your loan term, you can make additional payments toward the principal to save money and pay your mortgage off faster.

If you’re preparing to buy a home, you will need to look at not only mortgage interest rates, but also loan types and terms. Your mortgage term is how long you have to repay the loan, and most terms are 15 or 30 years.

Should you get a 15- or 30-year mortgage? If you can afford the payment on a 15-year mortgage, the long-term interest savings are great. But the lower monthly payment of a 30-year mortgage could offer you more flexibility if your financial situation changes.

Here, we break down the 15- vs. 30-year mortgage debate, including the pros and cons of each and how to decide between the two.

What Is the Difference Between a 15- and 30-Year Mortgage?

The primary difference between a 15- and 30-year mortgage is the length of time to pay off the loan.

A 15-year mortgage pays off your home in half the time of a 30-year loan and saves on interest overall. Borrowers typically qualify for lower interest rates for 15-year loans because the shorter term reduces risk for lenders.

The shorter term also means that more of your payment goes toward paying down principal, so you can build equity faster than with a 30-year mortgage. The trade-off is a higher monthly payment than a 30-year mortgage – at current rates, 20% or more. “The higher costs may not leave room for additional homeownership costs, such as renovations or unexpected repairs and maintenance,” says Shelby McDaniels, national director of business development at Chase Home Lending.

A 30-year loan’s lower monthly payment can provide more cushion in your budget. This can help make homeownership a possibility for more people.

30-Year Mortgage Pros and Cons

Pros

    • Lower monthly payments than a 15-year loan because they are stretched out over a longer time.
    • Easier to qualify for this loan with its smaller payments.
    • More room in your budget for other financial goals.

Cons

    • Higher interest rates because lenders consider a 30-year loan a greater risk than a 15-year loan.
    • Higher total interest paid.
    • Slower growth in home equity than a 15-year loan.

15-Year Mortgage Pros and Cons

Pros

    • Lower interest rates compared with 30-year loans because lenders take on less risk.
    • Lower total interest charges than a 30-year mortgage
    • Quicker loan payoff.
    • Faster equity growth, with more of your payment going toward principal.

Cons

    • Higher monthly payments compared with a 30-year loan.
    • You may not qualify for as big a loan because of the higher monthly payments.
    • Larger payments leave less flexibility for other financial goals, such as saving.

Crunching the Numbers: 15- vs. 30-Year Mortgage

Let’s say you need a $300,000 mortgage and qualify for a 15-year at 6.5% or a 30-year for 7.5%. Here’s how those costs would compare:

15-Year 30-Year Difference
Monthly Payment $2,613 $2,098 $516 savings per month if you choose a 30-year mortgage
Total Interest Paid After Full Term $170,398 $455,152 $284,754 savings in total if you choose a 15-year mortgage
Total Loan Amount After Full Term $470,398 $755,152

Alternatives to a Standard Mortgage Payoff

Exploring Other Mortgage Terms

If you’re on the fence between a 15-year and a 30-year loan, some lenders offer terms in the middle, such as a 20- or 25-year mortgage term. There are even some companies with 10- or 40-year terms if you’re looking for even more flexibility. Ask your mortgage professional to run the numbers to see which term option is best for you.

Paying Off Your 30-Year Mortgage in 15 Years

“There are tricks and hacks to dramatically reduce interest over the loan term,” says Erik Katz, president and founder of Rustic Country Real Estate in West Point, California. “If you take a 30-year loan and pay a few extra hundred a month, you may pay that mortgage down in 15 years anyway.”

Katz also suggests making an extra full payment at the end of each year if you can swing it to make a nice dent in the principal. You can also set up mortgage payments every two weeks, which results in an extra payment per year.

This way, if things ever get tight financially, you’re not locked into a higher payment. Just confirm that your lender doesn’t charge a prepayment penalty.

Refinancing

Starting off with a traditional 30-year term is best for many people. But if circumstances arise a few years into the mortgage that might allow you to refinance to a 15-year loan, such as a dramatic drop in interest rates, it could be worth exploring.

On the flip side, if you start out with a 15-year mortgage and the payments become difficult to manage, you can see if stretching it out into a longer loan term might help ease the financial pressure. Just be aware that doing so will mean paying more interest over the life of the loan.

15- vs. 30-Year Mortgage: How to Decide

Deciding between a 15- or 30-year mortgage comes down to finances and flexibility. Keep in mind that 30-year mortgages are far more common than 15-year loans for a reason: They are more affordable. The lower payment will give you more wiggle room, especially if your financial future is uncertain or your dream home wouldn’t be within reach with a 15-year mortgage.

On the other hand, a 15-year mortgage can offer savings if you have steady income to support your monthly payments and other expenses, including emergencies. “If the interest rate is a lot lower for the 15-year, that’s where I would advise to run the numbers,” says Katz.

Age may be a factor in your decision when weighing a 15- versus 30-year mortgage as well. “A 15-year mortgage could be a better option for those who are determined to pay off additional debts quickly, especially those who are preparing for an early retirement and want to minimize monthly payments,” says McDaniels.

A 40-year-old borrower, for example, could pay off a 15-year mortgage by age 55 while still owing on a 30-year mortgage through age 70.

If your ultimate goal is to save money, says Katz, “the name of the game is how fast can you get your house paid down.” Do the math and calculate your potential mortgage payment before you decide.

Source: money.usnews.com ~ By Dawn Papandrea ~ Image: CanvaPro

Posted on

Should You Buy a House With Cash?

Should You Buy a House With Cash?

Before you go all-in with your money, consider these caveats for buying a home with cash.

If you have enough money saved and the purchase won’t drain your savings, a cash purchase could be a good idea.

Key Takeaways:

  • Most people finance a new home, but anywhere from a quarter to a third of homebuyers pay in cash.
  • With high interest rates, buying a house with cash makes more sense now than it did a few years ago.
  • A mortgage is probably a better option if you can’t pay cash without draining your savings.

If high interest rates have you dreaming about buying a house with cash, you aren’t alone. Although this is a growing trend, most people still finance their homes. According to the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers, 26% of homeowners paid for their home in cash last year, an all-time high. That still means 74% of homeowners went the traditional route of taking out a mortgage.

If you think you can swing a cash purchase, should you? Here’s what you should consider when contemplating buying a house with cash.

The Pros: Why Buying a House With Cash Is a Great Idea

You Own the House Right Away

This is obviously one of the best things about buying a house with cash. You own it, right off the bat. You have no mortgage payment. Life is good. As Lindsey Harn, a real estate agent with Christie’s International Real Estate in San Luis Obispo, California, says: “You own the home, free and clear.”

By skipping the mortgage now, you can rest assured that any increase in value on a property directly benefits you when it comes time to sell. With no mortgage to pay off, 100% of the profits from the sale go into your wallet, making it easy to purchase another home with cash or finance a larger purchase with plenty of cash on hand.

You’ll Save a Lot of Money

In January 2021, mortgage interest rates were 2.65%, and by October 2023, they were 7.79%. More recently, mortgage rates have hovered just under 7%.

When interest rates were historically low, borrowing was cheap. But now, “with current mortgage rates around 7%, mortgages have become less attractive,” says Jay Zigmont, a certified financial planner and CEO of Childfree Wealth, a life and financial planning firm in Mount Juliet, Tennessee.

“If you buy a house with a mortgage and invest your cash in the market, on average you are unlikely to beat a 7% return after taxes,” Zigmont says. He says homeowners who can skip a mortgage are essentially getting “a risk-free, tax-free return of the interest.”

He adds: “If I could invest my money and get a guaranteed 7% tax-free return, I’d do that all day.”

It’s also important to remember that by financing, you take on additional costs with loan origination fees and the interest paid over time, so the net cost of buying your home is less when paid for in cash.

By paying cash, you won’t have to make monthly payments to a lender, and when the house increases in value, that directly boosts your personal wealth.

Sellers Love All-Cash Offers

Especially if you’re looking to buy an in-demand house getting a lot of interest, an all-cash offer can provide the needed leg up to get the seller to consider your offer more seriously than others. You may not even be the highest bidder, but the seller knows a cash offer will make the closing process easier.

“I’ve had sellers take cash offers over higher financed offers because, for them, it meant a guaranteed, problem-free closing,” says Brett Johnson, a real estate investor, licensed real estate agent and owner of New Era Home Buyers in Denver.

Generally, if you’re competing against another buyer, an all-cash offer puts you in a stronger position to negotiate, Johnson says. “Cash offers are appealing for sellers because they remove financing risk and provide more certainty of close,” he says.

Harn agrees. “It’s typically considered an easier transaction, so if you are competing with multiple offers, the seller may be more likely to take your cash offer as a sure thing, versus an offer contingent upon the buyer obtaining a loan and getting funding,” she says.

Cash Speeds Up the Closing Process

Part of the attractiveness of your all-cash offer is the elimination of the waiting period often imposed by mortgage lenders, filled with due diligence and underwriting to receive and approve the loan.

With a cash offer, you have the freedom to choose which aspects of the due diligence process are most important, rather than those that are required by a lender. For example, you could choose to forgo an appraisal while still having the inspection done.

While your speedier homebuyer timeline can be a powerful tool in negotiations for a purchase, don’t get carried away by neglecting aspects of due diligence that could reveal serious problems with the property in question.

“You can usually close sooner,” says Rose Krieger, a Spokane, Washington-based senior home loan specialist with Churchill Mortgage. “Instead of following the schedule set by a lender, items like the home inspection and appraisal can be completed at your discretion.”

You’re doing this on your own timetable and not a lender’s. That can smooth the process for you and the seller.

In some areas of the country that have been battered by climate change, you may find homes for sale that are uninsurable, Zigmont says. “If they are uninsurable because of previous claims, the only option is to buy it with cash. We are likely to see an increase in uninsurable homes in areas like Florida and California,” Zigmont says.

Whether you really want to pay cash for a house you can’t insure, however, is something to consider.

The Cons: Reasons Not to Buy a House With Cash

You May Be More Prone to Making Mistakes

It may sound freeing to hear you don’t have to get your house appraised or looked over by a home inspector or get homeowners insurance, but that doesn’t mean you shouldn’t do those things.

“While a home inspection and appraisal are not necessary with a cash purchase, it is still recommended to have both of them done,” Krieger says. She also says cash buyers need to have a full picture of the true value of the home and any issues you might inherit.

“The biggest mistake cash buyers make is assuming they don’t need due diligence,” Johnson says. “Just because there are no lender requirements, don’t forgo property inspections or title research. I’ve witnessed buyers rush into deals without checking liens, zoning issues or structural problems, only to face costly surprises later.”

You Could Be House Rich and Cash Poor

“Another mistake individuals make is putting too much equity into a house and not retaining enough liquidity,” Johnson says. “Real estate isn’t liquid, and I’ve seen investors who regretted not retaining enough working capital for when unexpected expenses came up.”

It’s not wise to purchase a home with cash if you have just enough to pay for it. It’s a good idea to maintain an emergency fund that will sustain you for at least a few months if you were to lose your income – covering things like car maintenance, unexpected medical costs and your regular grocery and utility costs for up to six months. You’ll also want to have cash on hand for any number of unexpected house needs, from a new roof to a furnace that’s on its last legs.

“While owning a home free and clear is great, if you have to withdraw from your retirement or sell stocks and pay taxes, getting a small loan may be better than creating a tax implication for yourself,” Harn says.

In general, after you pay for a house, you need to think about a few other future expenses that may be on the agenda:

  • Furnishing and maintaining your home. If you just bought a house with cash, you probably have enough money to buy living room furniture, a bedroom set, a lawn mower or whatever you’re going to need. Presumably, with no mortgage payment, you’ll have money available every month to go toward stocking your pantry and updating your wardrobe, but think about whether such a significant cash outlay will hurt your quality of life.
  • Do you have other significant expenses coming up? If you have children to put through college soon, a wedding to pay for or other expenses coming up, like buying a new car, it could be better to put down a sizable downpayment, allocate some of the cash for upcoming expenses and borrow the rest.
  • Closing costs. “When paying with cash, there are still closing costs associated with the purchase via title and closing fees,” Krieger says. “It’s also critical to remember that you will be responsible for making your homeowner’s insurance and property tax payments on your own versus having an escrow set up for you by a lender.”

Should You Buy a House With Cash?

It depends. Everybody’s financial situation is different. But if you have enough money saved to purchase a house outright and the purchase won’t drain your savings, a cash purchase could be a good idea. It may be worth your time to schedule a meeting with a financial advisor to help you run through your own personal pros and cons.

As Johnson puts it, “A cash purchase can be a wonderful tool, but use the same amount of caution on a cash purchase as on a purchase with financing.”

Source: realestate.usnews.com ~ By: Geoff Williams ~ Image: Canva Pro

Posted on

What You Need To Know About Homeowner’s Insurance

What You Need To Know About Homeowner’s Insurance

Homeowner’s insurance is a must-have to protect what’s probably your biggest investment – your home. And while you never want to think about worst-case scenarios, the right coverage is basically your safety net if something goes wrong. Here’s how it helps you.

  • Covers Repairs and Rebuilding Costs: If your home is damaged by fire, storms, or other covered events, your policy helps pay for repairs or even a full rebuild.
  • Protects Your Belongings: Many policies can also cover personal items like furniture, electronics, and clothing if they’re stolen or damaged.
  • Provides Liability Coverage: If someone gets injured on your property, homeowner’s insurance can help cover medical bills or legal expenses.

In the simplest sense, it gives you peace of mind. Knowing you have protection against unexpected events helps you worry less. And with such a big purchase, having that reassurance is a big deal.

And while your first insurance payment will be wrapped into your closing costs, you’ll want this to be a part of your budget beyond closing day too. That’s because it’s a recurring expense you’ll have once you get the keys to your home.

Here’s what you need to know to help you budget for this important part of homeownership today.

Costs and Claims Are Rising

In recent years, insurance costs have been climbing. According to Insurance.com, there are four big reasons behind the jump in premiums:

  • More severe weather events and wildfires are leading to higher claims.
  • Insurance companies are pulling out of high-risk areas, reducing options for homeowners in some states.
  • Past rate increases haven’t kept up with the rise in claims.
  • The cost to rebuild or repair homes has gone up due to higher material and labor costs.

Basically, disasters are happening more often, repairs cost more, and insurers have to adjust their rates to keep up. Data from ICE Mortgage Technology helps paint the picture of how the average yearly premium has climbed over the last decade (see graph below):

What You Can Do About It

Homeowner’s insurance is a must to protect your home and your investment. But with costs rising, you’ll want to do your homework to balance the best coverage you can get at the best price possible.

Homeowner’s insurance rates vary widely based on location, provider, and coverage. Shop around and compare quotes before settling on a policy. And don’t forget to ask about discounts. Things like security systems or bundling with auto insurance could help lower your insurance costs.

Bottom Line

When you’re planning to buy a home, it’s important to look beyond just your mortgage payment. You’ll also want to budget for your homeowner’s insurance policy. It gives you a lot of protection against the unexpected. And while it’s true those costs are rising, there are things you can do to try to get the best price possible.

Source: keepingcurrentmatters.com

Posted on

6 Mistakes Buyers Make When Negotiating a Sale Price

Mistakes Buyers Make When Negotiating a Sale

Both sellers and buyers make blunders when dickering over a price, but buyers can do the most damage to themselves. Buying a home is a business transaction, so don’t let the seller’s worldview affect your feelings.

Key Takeaways

    • Buying a house is a business transaction – but it’s almost impossible for it to not feel personal.
    • If negotiating a much better deal is a goal, don’t offer too much information about how excited you are about buying or selling.
    • You shouldn’t plan on negotiating. Negotiating a price for a house happens when you’re close to agreeing to a sale but haven’t quite gotten there yet.

You’ve found a house that you want to buy, or a buyer who wants to purchase your home, but you haven’t quite settled on the price. It’s time to negotiate.

That’s what homebuyers and sellers do, but these days, negotiating from the buyer’s side is pretty hard. It’s a seller’s market with more buyers than homes for sale, and sellers know they can find another interested buyer if you even start to get on their nerves.

Still, that doesn’t mean you can’t get the price lowered. But there are some mistakes to avoid when negotiating a home’s price.

1. Don’t Be Too Ruthless

You’re thinking, “I am not going to make that mistake. I will be nice to the seller. I am a super nice person.” But if you’re negotiating a price over a home, suddenly you’re on a different team than the seller and your competitive nature could take over.

“The most common mistake, in my opinion, that buyers make is playing hardball when negotiating,” says Brian Rudderow, a real estate investor who owns HBR Colorado, a Colorado Springs, Colorado-based company that buys houses. “It’s fine to be stern when requesting inspections and asking for money off, but you never want to overstep your bounds and make the seller angry by insulting their intelligence and calling their character into question.”

For instance, he says if you feel a home inspection reveals something that warrants a discount, just ask for it. Nicely.

“Never make accusatory statements to a home seller. I’ve never seen it work once,” Rudderow says.

2. Don’t Let Your Feelings Get the Best of You

“I think the most common mistake I see both buyers and sellers make is becoming overly emotional or taking things too personally,” says Robert Washington, a broker with Savvy Buyers Realty in St. Petersburg, Florida. “This typically happens if one of the parties is offended by an offer or counteroffer. This can happen if either party feels disrespected, and they often carry that resentment.”

Remember that buying and selling a home, even if this involves your dream home, is ultimately a business transaction. If you learn your seller has a completely different worldview than you do, don’t let that shade your feelings about the home. If it’s a fantastic piece of property and you sour on it because you don’t like the homeowner’s politics or favorite football team, you’re just hurting yourself.

“It’s important for both parties to take a step back and remember that at the end of the day, it is a numbers base transaction and that both parties will likely never meet or have a relationship outside of the transaction,” Washington says.

3. Don’t Offer Too Much Information

When you negotiate a price for anything, it always helps to know the other person’s state of mind. Are they hungry for a deal? Are they willing to shave a little off the price or are they not going to budge at all? They’re wondering the same things about you. So be friendly but not too chatty.

“Buyers usually make the most mistakes because the sellers, if they are smart, get out of the house,” says Jeff Lichtenstein, owner and president of Echo Fine Properties with offices in southern Florida.

That’s because if the seller is there, you’re not likely to be as free with your feelings and say something like, “This is my dream home. I’ll pay whatever I can to get it.”

But when the seller isn’t there, the listing agent is. Sometimes, buyers forget that the listing agent represents the seller (indeed, a listing agent is sometimes called the seller’s agent). According to Lichtenstein, the listing agent “reads” the buyer.

“Buyers talk openly in front of the listing agent about their plans. They are being interrogated without them realizing it,” he says. “A good listing agent asks open-ended questions to derive information they can give back to the seller for a better negotiating position.”

If you give the impression that you would gladly pay more than the asking price, the listing agent will share all the vibes you’re giving off with the seller.

Your real estate agent will probably communicate to you subtly if you are oversharing in front of the listing agent. This is a two-way street – you want to keep your eyes and ears open to learn as much as possible from the listing agent or seller, just in case they reveal anything that might help when negotiating.

Sellers can blow it in a negotiation by also revealing too much information too quickly and coming off as desperate. “Sellers that show up at the home inspection can hurt themselves by being put on the spot when asked if they will take care of repairs,” Lichtenstein says. “Many panic and say they will repair everything when they really don’t need to.”

4. Don’t Make a Really Low Lowball Offer

You’re likely to hurt your position if your purchase offer is way below the asking price unless there’s a really good reason, such as an expensive roof repair or other issue discovered during inspection.

You could bruise the seller’s feelings with a bottom-dollar offer without reason. They may see your lowball offer not as you looking for a deal but as a sign of disrespect. You may not intend it that way, but there’s always a good chance emotions will run high, even though it’s a business deal.

“Buying a house is usually the most significant purchase someone will ever make so it is understandable that buyers will be emotional when purchasing a home,” Washington says. “It’s also usually the case that the sellers have occupied the home and there is probably quite a bit of sentimental value involved. But all of that needs to be minimized when buying or selling.”

5. Don’t Neglect to Listen to Your Real Estate Agent

Assuming you have one, you’re working with a real estate agent for a reason. If they think you’re making a good offer, you probably are. If they think you’re asking for too much or offering too little and they tell you so, keep in mind that they do this for a living. They do it all the time and you don’t.

Here’s some standard advice many agents offer that will help you if you do have to negotiate:

  • Get your finances in order before you make any offer. Many real estate agents won’t work with you if you don’t have the financing lined up. Some sellers may not either; they need to know you’re a viable buyer. You can’t really negotiate if you aren’t sure if your bank will give you the financing for the home.
  • Your first offer should be your best offer. Yes, you can lowball, but odds are somebody else is going to offer the asking price, or even a little more, to increase their odds of getting the home. This is especially true in this tight inventory market. While you’re bidding low and drooling about getting a super deal, your competitor could be actually getting the home.
  • Don’t assume the inspection will give you a chance to negotiate. It might, if there are some real problems with the house. But if it’s a solid home and other buyers are circling, you probably want to stick with your original offer, which tends to be made before a home inspection.

6. Don’t Assume You Will Be Negotiating

You certainly may end up trying to find common ground on a price. Remember, however, that each party has a different agenda. If you’re the seller, you have an asking price that you and presumably your real estate agent spent a lot of time settling on. If you’re an interested buyer, it’s assumed you are basically OK with the price range and will make a fair deal.

Negotiating comes into play if and when there’s a reason to negotiate. For instance, if your home inspector finds the house has termites, suddenly it’s not quite the home you thought it was. Maybe the carpet is threadbare or there are plumbing problems, and you’d like to fund the repairs with a price reduction. You need to weigh the cost of the necessary investment, and the seller must decide whether to stand firm on the price. Maybe the two of you decide to meet somewhere in the middle.

A seller may have a bottom-line number or there could be other interested buyers. You may need to decide how far to push a price reduction.

Don’t forget to consider nonfinancial incentives. Perhaps you want to move in right away or the seller needs a little more time to vacate the property. Perhaps you can start negotiating around the edges.

Starting the process with realistic expectations and a fair price will go a long way toward a smooth real estate transaction. If either party loses sight of this, expecting to get an unrealistic deal or hoping a bidding war drives up the sale price, somebody’s certain to be disappointed. It could also mean starting over, which is a loss of time and effort for both sides.

Source:  realestate.usnews.com ~ By Geoff Williams ~ Image: Canva Pro

Posted on

2025-2029 Five-Year Housing Market Predictions

2025-2029 Five-Year Housing Market Predictions

The next five years will likely usher in slower increases in both home prices and rents.

Mortgage rates will determine whether sales are driven by life changes or pent-up demand, shaping the market by 2029.

Key Takeaways

    • Sales of existing homes will grow moderately as buyers become accustomed to higher prices and mortgage rates, but transactions could surge if rates decline.
    • New policies on real estate commissions and the sharing of home listings on public MLS systems will likely vary between regions before revamped national rules are enforced.
    • Newly built homes will continue to fill in the supply gaps created by the lack of existing home inventory, especially by homebuilders who can buy down mortgage rates.
    • Mortgage rates will likely range from about 6% to 7% unless there is a recession, but short-term lending rates will continue falling through 2026.

Over the next five years, with fallout from the COVID-19 pandemic gradually giving way to potential impacts from a second Trump administration, look for changes to immigration, expanding tariffs, the rising costs of damages related to climate change, the expansion of AI into more parts of our daily lives and the steady dissolution of the rules-based international order focused on global trade flows.

Still, for the housing market, none of these factors will weigh as heavily as mortgage rates: If they remain relatively high, transactions will be based more on households making moves due to changes in jobs, finances or household composition. However, if mortgage rates manage to fall faster, then pent-up demand from the last few years could be unleashed with volumes returning more to historic norms. How this plays out will determine just how different the list of the hottest housing markets in 2029 may look versus 2024.

Our data is sourced from several authoritative sources, including the U.S. News Housing Market Index, an interactive platform providing a data-driven overview of the housing market nationwide.

Housing Index Score over Time

U.S. News

Existing Home Sales Will Rise but Still Be Constrained

In comparison with historical norms prior to the pandemic years, home sales are expected to remain low as long as mortgage rates remain well over the 6% level. According to recent projections, the Federal Reserve doesn’t see inflation subsiding to 2.0% on a consistent basis until early 2026. This will mean higher but gradually declining short-term interest rates throughout 2025.

Interest Rates | 6.18% (-1.02% YOY)

 

U.S. News

Two other wild cards include the potential impact of tariffs and the deportation of millions of undocumented immigrants, both of which could be destabilizing to the economy – especially in agriculture and construction – and lead to a rebound in inflation. Since mortgages are influenced much more by the 10-year Treasury bond than the Fed’s short-term rates, if investors demand higher bond rates in exchange for additional risk, that reduces the Fed’s influence on long-term mortgage rates and rates could stay elevated.

Still, given that consumers have become more used to higher borrowing rates for homes, those with sufficient incomes and down payments may see 2025 as a perfect year to jump back into the housing market, especially as the lock-in effects of sub-6% interest rates continue to wane.

As of the second quarter of 2024, although nearly 86% of homeowners with mortgages had interest rates below 6%, that share is down from nearly 93% two years ago and continues to decline as sellers are forced to list their homes for a variety of reasons such as job changes, the need for more space as well as the three Ds: death, divorce and debt.

Rob Cook, Chicago-based vice president and chief marketing officer for Discover Home Loans, advises existing homeowners looking to sell to first compare their existing and future mortgage payments, and perhaps consider renovation as an option.

“A home equity loan could be an appealing option for financing home improvement projects, as it allows current homeowners to use the available equity they’ve built in their homes without modifying their existing mortgage,” he said in an emailed response. For those who need to move, he suggests other options aside from the traditional fixed-rate mortgage. “If rates remained elevated, there could be increased demand for ARMs (adjustable-rate mortgage) or other variable rate products. Homeowners should be mindful of how these types of mortgages could result in higher rates in the future.”

With the November election in the rearview mirror, potential homebuyers are already preparing well in advance of the traditional spring selling season: Redfin’s Homebuyer Demand Index, which tracks tours and other services requested from its agents adjusted for seasonality, was up 7% year-over-year during the first week of December to approach its highest level since September 2023. In addition, the Fannie Mae Home Purchase Sentiment Index rose again in November to its highest level since February 2022, as well as rebounding sharply from the all-time survey low set just over two years ago.

Median Sales | $429k (+4.1% YOY)

 

U.S. News

Median Rent Price | $2,050 (+1.8% YOY)

 

U.S. News

Housing Supply | 3.1 mo (+0.55 YOY)

U.S. News

Rental Vacancy | 6.3% (+0.4% YOY)

U.S. News

Homebuilders Will Reap Supply Shortage Benefits

If the inventory of existing housing supply remains relatively low, buyers will continue to instead look for newly built homes. With newly built homes making up about 30% of overall housing inventory in recent months (or approximately double its historic share) more buyers are considering the advantages of new construction. Housing starts jumped from under 1.3 million in 2019 to over 1.5 million in 2022 before settling back to an annualized rate of about 1.3 million in October.

Buyers of new homes will certainly have ample options from which to choose, with months of supply for new single-family homes rising to 9.5 months in October – more than double the level of existing single-family supply of 4.2 months. About one-quarter of these unsold new homes have completed construction, which could be great news for buyers in search of a deal. That’s because larger builders interested in selling off their inventory also have the financial resources to offer generous incentives, such as mortgage rate buydowns, paying for closing costs and providing allowances at their design centers.

Doug Bauer, CEO of the leading homebuilder Tri Pointe Homes in Irvine, California, is certainly bullish on new home construction. “We’re planning on a strong spring selling season,” he says. “(Mortgage) rates may hover around 7% and we have the levers and tools to meet pretty unmet demand.”

As for the potential impact of deportation of undocumented construction workers, Bauer says that it is unlikely to impact the majority of native-born or documented skilled tradespersons working with the larger public homebuilders. However, the ongoing issue of future shortages in the construction trades continues to be addressed by foundations such as the Home Builders Institute.

Looking further along into the forecast period, Bauer also sees the reduction of energy-efficient building codes recently mandated by HUD and USDA when financing new residential construction as an important step to improving affordability. According to a study cited by the NAHB, building to the 2021 International Energy Conservation Code can add over $30,000 to the price of a new home. Should these mandates be extended to mortgage giants Fannie Mae and Freddie Mac – which together finance 72% of new home purchases – new home affordability would be impacted across the country.

Single-Family Building Permits

U.S. News

Multi Family Building Permits

U.S. News

Real Estate Commission Procedures Will Change

Now that National Association of Realtors (NAR) has rolled out new rules on real estate commissions to most multiple listing services nationwide, the ways in which sellers and buyers compensate agents will change and potentially be reduced, especially for luxury housing, in which the actual dollar amounts for these commissions allow room for more negotiations.

Still, there are still some unsettled questions, including some recent appeals of the national agreement and how the Justice Department under a second Trump term plans to enforce it or push for additional industry reforms. For now, however, some industry leaders have opted to simply make it easier to adhere to the agreement as written.

When Leo Pareja was sworn in as CEO of eXp Realty in early April 2024, just three weeks had passed since NAR had reached an agreement with plaintiffs on broker commissions. By late July, with new practices scheduled to go into effect on Aug. 17, Pareja and his team a new listing form a new listing form which clearly states that there is no commission sharing with a buyer’s agent. Given the chaos continuing to embroil the industry at the time, eXp, as the largest residential real estate brokerage in the United States by agent count and transaction sides with operations in over 20 other countries, also encouraged other brokerages to use or even improve upon the form.

“I equated this more to a ‘Y2K’ moment and we went all in. We had to be very clear, consumer friendly without legalese, and educate agents on possible paths,” Pareja says. “It was bumpier in other parts of the country, with a lot of confusion coming out the other way, and had we not jumped on it, it could have played out quite differently.” The Consumer Federation of America seemed to agree: Although critical of the new form introduced by the California Association of Realtors, it not only singled out eXp’s version but also continues to offer it on their own website. The listing site Zillow has also introduced its own Tour Agreement.

Here’s what potential homebuyers should know: Where in the past they could count on a buyer’s agent to spend the day showing listings without any official relationship, they will now be asked to sign a form to create one for a specific period of time. If, however, the agent only shows properties and no purchase offers are made, then no brokerage fees are due.

The Clear Cooperation Policy for MLS listings Is Under Duress

If there’s one more settlement to be made, Pareja thinks it’s regarding the Clear Cooperation Policy, which was introduced by the NAR in 2020 to require listing brokers to submit new listings quickly to their local MLS to provide the widest array of choices to potential buyers.

However, there is a special office exclusive exception for listing brokers who can register the property but not list it as either “active” or “coming soon” as long it is not marketed publicly – sometimes referred to as a “private” or “pocket” listing shared only with a select group of agents (often with the same brokerage to maximize commissions). Since enforcement of the rules are done at the local level, some brokers opt to never register the listing in the MLS at all. Not surprisingly, several large brokerages and local listing systems would like to see the CCP completely reformed.

Although Pareja doesn’t have a problem with the office exclusive exception, he does argue that when brokers refuse to share listings on the MLS while continuing to pull publicly available listings from the same platform for their own websites and clients, that could be problematic in several ways.

Firstly, it could undermine trust in the world’s most efficient market for real estate listings in the United States and Canada, as it would no longer be comprehensive. In most other countries, buyers need to comb through multiple websites of competing brokers to accomplish what the MLS does with a single click. Secondly, it could encourage the hoarding of listings as the primary business proposition of a brokerage at the expense of providing the best value and service. Thirdly, it could do away with the traditional rules of engagement included as part of buying and selling homes listed on the MLS, potentially leading to unnecessarily messy – or even fraudulent – transactions.

Even though a large brokerage such as eXp could flourish with its own private listings, Pareja thinks disbanding the CCP would ultimately be bad for buyers, sellers and agents.

Total Cost of Ownership Will Become More Important

With rising costs for property taxes, home insurance, maintenance and adapting to a changing climate, the total costs for homeownership are far more than just mortgage principal and interest payments alone.

According to a study in mid-2024 by Bankrate, these annual variable costs for a typical single-family home rose by nearly 26% between March 2020 and March 2024 to over $18,000 per year, or $1,510 per month. Add to this the cost to finance the median-priced single-family home of $2,278 per month, and the total cost of ownership rises to nearly $3,800 per month. As a point of comparison, renting a typical single-family home in March 2024 was $2,236 per month, or 30% less. It is because of this cost differential that so many would-be homebuyers are preferring to rent.

In addition, given that more residents are living in communities with HOAs, they’ll need to budget for monthly fees and special assessments. According to the Foundation for Community Association Research, over 75 million Americans live in one of the 30% of residences governed by an HOA, and that number is expected to grow in the years ahead.

Although the national average monthly fee is $259 and generally covers some of the costs otherwise borne by a homeowner not living in an HOA, living in a poorly run community can mean catastrophically high assessments later. That’s why it’s crucial when buying a home in an HOA to carefully examine all governing documents, meeting minutes as well as the most recent annual budget and reserve study.

Housing Shortage Will Last Through the End of the 2020s

With the estimated pent-up demand for housing ranging up to 4.5 million homes, even if the nation’s builders are willing to produce more supply, it still takes time to find suitable land, skilled labor and materials. While the National Association of Home Builders expects this pent-up demand to be supplied between 2025 and 2030, unless there’s a consistently higher rate of legal immigration above the pandemic years, changing demographics by 2030 will eventually result in lower demand for new housing.

National Housing Market Predictions for 2025-2029

The following is a summary for year-end 2024, 2025 and some predictions for the housing market through 2029. Although a recession is no longer predicted, economic growth is expected to decline from the robust rates of 2.9% in 2023 and 2.8% to 3.0% during the second and third quarters of 2024. However, should the country enter a recession, these predictions would change accordingly.

Home Prices: After remaining nearly flat in 2023 but jumping 4.0% year-over-year through October 2024, home prices are forecast to continue rising moderately as more housing inventory is released but rates remain relatively high. By 2025 through 2029, given the large run-up from 2021 through now, home prices are predicted to rise at a percentage point or so above the rate of inflation, for an estimated increase of about 17% from 2024 levels.

Home Sales: After falling sharply in 2023 and 2024 to the lowest levels in almost 30 years, existing home sales are predicted to slowly increase through 2029. Sales of new homes, which continued to rise in 2024 due to builders’ ability to buy down mortgage rates to boost affordability, will expand on those gains throughout 2029 but continue to be limited by competition for buildable land and skilled labor.

Home Rents: After jumping sharply in 2021 and 2022, home rents continued to rise in 2024 at a more moderate pace, especially in those markets that have seen a huge jump in supply. For 2025, overall rents are predicted to continue rising moderately and the percentage increase may be higher for single-family homes. Given ample new supply of multifamily apartments in recent months, their rents are predicted to flatten out or even fall in the first half of the year before rebounding in the second half.

Source: realestate.usnews.com ~ By: Patrick S. Duffy ~ Image: Canva Pro