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Category: Buying a Home

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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

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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

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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

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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

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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

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Multi Family Building Permits

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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

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2025 Housing Market Outlook

Let’s Discuss the 2025 Housing Market Thaw

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. 

Image: Hootsuite

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How Real Estate Agents Take the Fear Out of Moving

Real Estate Agents Take the Fear Out of Moving

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 MLS survey, respondents agreed partnering with an agent is essential and helps cut down on their stress:

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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.

Source: keepingcurrentmatters.com ~ Image: Canva Pro

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How to Get Preapproved for a Mortgage

Get Preapproved for a Mortgage

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.

Source: money.usnews.com ~ By: Kim Porter ~ Image: Canva Pro

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What Is a Starter Home?

What Is a Starter Home

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.”

Source: realestate.usnews.com ~ By: Josephine Nesbit ~ Image: Canva Pro

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Can You Get a Mortgage If You’re Self-Employed?

Can You Get a Mortgage If You're Self-Employed?

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.

Source: money.usnews.com ~ By: Dawn Papandrea ~ Image: Canva Pro