Category: Buying a Home

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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

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How Does Buying a House As-Is Work?

How Does Buying a House As-Is Work?

Key Takeaways:

  • When you buy a home as-is, you are assuming financial responsibility for the home in its current condition.
  • You can complete inspections and, if desired, cancel the contract within the inspection period without penalty.
  • Buying as-is is becoming more popular in today’s hot market and doesn’t necessarily signal issues with the home.

If you’re in the market to buy a home there’s a good chance you’ll come across a house being sold as-is during your buying journey. The term “as-is” indicates the owner’s desire to sell the property as it sits, making no repairs before closing.

While it could signal a red flag, this type of home sale is becoming a common transaction in today’s market, and in many cases could be a beneficial move for a buyer.

What Does Buying a House As-Is Mean?

Buying a house as-is means you purchase a home in its existing condition. There are different types of contracts sellers can use. One is the standard “repair limit” purchase and sale agreement, where the seller is required to fix any issues on the home totaling less than a specific amount before closing. The amount will vary depending on the contract and can be as little as $500 or as much as 1.5% of the purchase price.

The second type, the as-is contract, basically allows the buyer sole discretion to cancel the contract for any reason within the inspection period.

“With the as-is contract, the seller is not required to make any repair whatsoever, even if something is found in an inspection,” says Marcia Socas, a broker with Castro Realty Group in Orlando, Florida.

By allowing a buyer to withdraw their offer during the inspection period without penalty, gives buyers more flexibility and an easier exit.

What Types of Homes Are Typically Sold As-Is?

Bank foreclosures and other distressed properties in need of major repairs are exclusively sold as-is. Since as-is contracts were used with distressed homes in the wake of the Great Recession, many people believe homes being sold as-is need a lot of work.

“However, that’s shifted over the years. Now, it’s the standard way of selling regardless of home condition,” says Socas.

There are a few reasons a seller will sell as-is even if their home is in good condition.

  • The seller needs to sell quickly for relocation or other purpose.
  • It’s an inherited property and the heirs don’t want to deal with repairs to sell it.
  • There’s a divorce or other legal motivation.
  • The seller wants to get more competitive bids in a hot market.

Selling as-is more of an indication of the market and the fact that the owner would prefer not to make repairs, says Scott Beloian, broker and owner of Westcoe Realtors in Riverside, California.

“If it’s a completely hot seller’s market, a lot of sellers will sell as-is. In a buyer’s market, it doesn’t happen a lot,” says Beloian.

How Does Buying a House As-Is Work?

“A lot of first-time homebuyers are scared when they hear as-is. They think they can’t have an inspection,” says Beloian. “However, you’re not buying it sight unseen. You can still do your inspections, ask for repairs and have time to decide if it’s the right home or not. As long as it’s within the inspection period, the buyer can walk away without repercussions.”

The as-is purchase offer contract is customizable.

“Contracts are fill-in-the-blank, where you can add in the desired inspection period,” says Socas. If it’s left blank, the inspection period goes to the default period for the state, which is typically 15 days, but can be longer. For example, in California the default inspection period for as-is contracts is 17 days, says Beloian.

In a seller’s market, Socas advises her clients to include a 10-day inspection period. However, if it’s extremely competitive, “sometimes we lower that inspection period to three days or even one day,” says Socas.

If the contract is accepted, the buyer places the earnest deposit money with the specified closing agent or title company. The seller relays all required disclosures about the home and the inspection period begins immediately.

The contract says buyers can cancel at the “buyer’s sole discretion.” If they discover they can’t get the financing terms they wanted, there are more repairs than anticipated on the inspection report or possibly a large, expensive issue is discovered with the home, they can cancel the contract without forfeiting the deposit so long as its within the inspection period.

If buyers cancel outside the inspection period, however, the earnest money deposit is forfeited to the seller, even with an as-is contract. If the buyer proceeds with the purchase, the closing continues as usual with a title company and the buyer assumes financial responsibility for the home’s condition as it sits at closing.

Does Buying a House As-Is Save Money?

For most, buying as-is doesn’t really save money, Socas says. Rather, she adds, “You have more flexibility with your options and have a more attractive offer with negotiating power.”

If the inspection report comes back and has something that needs to be addressed, you can still ask the seller to fix it with an as-is contract.

Since you and other potential future buyers can cancel without repercussions during the inspection period, a seller might be willing to negotiate so you don’t cancel the contract. This is especially true over something small or that regards safety, Socas explains.

Beloian says homes that need to be completely renovated can offer notable savings, but buyers will spend some or all of that savings on repairs to the home.

“A lot of times people can get a deal buying ‘borderline homes,’ where it’s not in complete disarray, is still financeable but needs some work,” says Beloian. “These can offer some savings, but in a tight market like we’re seeing today, these homes are few and far between.”

Who Is Buying a House As-Is Right For?

“Buying an as-is home can work for anyone as long as they understand the advantages and limitations of that type of contract,” says Socas.

Since you can cancel without reason within your inspection period, there isn’t a huge risk involved when making an offer. “But you are taking on more responsibility to repair the property after that period,” says Socas.

Pros of Buying a House As-Is

 

  • Buyers can cancel their contract within the inspection period for any reason without losing their deposit.
  • You can still conduct inspections and even ask for repairs, although the sellers aren’t required to agree to make them.
  • Using a short inspection period can help you have a stronger offer in a competitive market.
  • You potentially get a good deal on a home because it’s priced for its condition.

Cons to Buying a House As-Is

  • The home may need extensive repairs or be in uninhabitable condition.
  • The poor condition of the property might limit access to financing.
  • If you request repairs, the seller may deny them, leaving you financially responsible for repairs if you proceed.
  • You must cancel the contract in the inspection timeline or lose your earnest money deposit.
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Housing market predictions: 5 year forecast

housing market predictions

It’s been a wild real estate ride over the last few years. After a red-hot market characterized by very low interest rates and frenzied bidding wars, mortgage rates increased to their highest level in more than 20 years. The average rate for a 30-year mortgage more than doubled between August 2021, when it was just 3 percent, and October 2023, when it reached 8 percent. (Rates have now dipped a bit and were back below 7 percent as of August 2024.)

As you might imagine, this trend has led to a slowdown in buying activity. Even so, with inventory still scarce, home prices have hit new records and remain unaffordable in many parts of the U.S.

Real estate forecasts for the next 5 years

There are plenty of predictions about where the housing market is going this year. But what about further out? After all, buying a home often requires long-term planning. We asked several industry experts to peer into their crystal balls and give us their real estate forecast for the next five years. Here’s looking at you, 2029.

The current housing market
  • Home sale prices: The country’s median existing-home sale price in June 2024 was $426,900, according to the National Association of Realtors (NAR) — the highest median price NAR has ever recorded. For new-construction homes, National Association of Homebuilders (NAHB) data shows that June’s median sale price was only slightly lower at $417,300.
  • Inventory: The supply of homes for sale is increasing, but remains too low to meet demand. Per NAR data, the inventory of unsold existing homes was at a 4.1-month supply in June. It’s typically believed that a balanced market would require a 5- to 6-month supply.
  • Days on market: With high prices and mortgage rates putting a purchase out of reach for many, homes are taking longer to sell. In June, the median length of time homes spent on the market was 22 days, up from 18 days one year earlier, per NAR.
  • Homes sold: Nationwide sales of existing homes fell 5.4 percent in June 2024, per NAR. Meanwhile, the pace of new single-family home sales fell 16.5 percent in May 2024 from a year earlier, per NAHB data.
  • Mortgage rates: According to Bankrate’s weekly survey of large lenders, the average 30-year mortgage rate as of August 7 was 6.59 percent.

Forecast for mortgage rates and types

Lawrence Yun, NAR’s chief economist, says mortgage interest rates have likely crested, at least for the rest of 2024. “I believe we’ve already reached the peak in terms of interest rates,” he told attendees at a November NAR convention. Within two years, he says, the rate should return to 5.5 or 6 percent, assuming the federal budget deficit does not put permanent upward pressure on all borrowing costs.

Because rates are high, Yun foresees a greater interest in adjustable-rate mortgages through next year. However, after that, he predicts 90 percent of Americans will return to the traditional 30-year fixed-rate mortgage.

A fixed-rate mortgage provides the certainty borrowers want.— Greg McBride, Bankrate Chief Financial Analyst

Greg McBride, CFA, Bankrate’s chief financial analyst, thinks the 30-year fixed will remain the dominant mortgage product. “A fixed-rate mortgage provides the certainty borrowers want,” he says. “It is the best gauge of affordability, and there is very little upfront advantage to taking an adjustable-rate mortgage, as those rates aren’t much lower than fixed rates right now,” he says.

Predictions for home prices

Yun foresees no major changes in purchase price tags on a nationwide level next year, with fluctuations of only about 5 percent one way or the other. Overall, in five years, he expects prices to have appreciated a total of 15 to 25 percent.

McBride predicts home prices will average low- to mid-single-digit annual appreciation over the next five years. This rate of appreciation, he says, is consistent with the long-term average of home prices increasing by a rate that hovers a percentage point above the inflation rate.

Will the housing market crash?

While it may show bubble-like characteristics, Yun does not expect the residential real estate market to burst. He does predict that sales will be at a low point next year, with only 5.3 million units sold, but he foresees a gradual increase afterward, up to an annual 6 million units by 2027.

Despite today’s higher mortgage rates, home prices are still strong, he adds. Even if they decline 5 percent or even 10 percent next year, that’s not anywhere close to crashing, which he says is characterized by about a one-third drop.

A crash happens with oversupply. It will not happen, because there isn’t enough inventory.— Lawrence Yun, Chief Economist, National Association of Realtors

“A crash happens with oversupply,” Yun says. “A 30 percent decrease will not happen, because there isn’t enough inventory.” He believes the housing supply will balance out within five years.

Many other experts agree that there is no danger of an imminent housing market crash. Not only is inventory too scarce, as Yun notes, but lending standards today are much stricter than they were back in the days of the Great Recession. Mortgage lenders are largely not issuing loans that borrowers can’t really afford anymore, which helps keep foreclosure rates low. And those who do borrow have excellent credit: a very high median score of 772, according to the Federal Reserve Bank of New York.

Will we shift into a buyer’s market?

Yun expects the overall seller’s market to continue as long as housing inventory remains low. By five years out, though, he foresees more of a balanced market, where neither the buyer or seller holds a significant advantage. Instead, the negotiating power between parties will be more equal and depend on the individual case.

Caroline Feeney of Narrative Bent, a former director of content and executive editor at real estate site HomeLight, says the shift away from a seller’s market has already begun. She also expects a balanced market within a few years, and says that 55 percent of HomeLight agents surveyed said the markets that heated up the fastest during the pandemic — including Austin, Phoenix and Boise — would likely be the first to cool down. This scenario may already be playing out: The median home sale price in Austin was down 6.2 percent year-over-year, according to June 2024 Redfin data, and homes there were taking a long 50 days to sell.

Where will new homes be built, and what kind?

With hybrid work schedules now common and commuting no longer as relevant, Yun predicts the suburban market will remain strong. He expects growth in Sun Belt areas with rising populations, including the Carolinas, Florida, Texas and Tennessee.

Backing up his prediction, Danushka Nanayakkara-Skillington, assistant VP of forecasting and analysis for NAHB, says 50 percent of new single-family construction is in the South. Southern markets scored big in Bankrate’s 2023 Housing Heat Index as well.

The number of multi-family homes under construction has increased over the last few years — Feeney credits this growth in part to their lower price tags and the pressure on municipalities to relieve shortages and provide more affordable housing. Still, with high mortgage rates and inflationary building material prices, Nanayakkara-Skillington expects the multi-family market’s growth to stabilize within a few years, with the number of new housing starts decreasing.

Tips for preparing to buy a home

Buying a house is a major commitment, and starting to save five years in advance is perfectly reasonable. Here are some strategies to get your finances in shape and save for a down payment so you can be a homeowner by 2029.

1. Think about earning power

Switching jobs is usually the fastest path to a significant salary bump, so be willing to look for other opportunities to increase your earning power. According to a 2022 study from the Pew Research Center, 60 percent of workers who switched jobs earned more money in their new roles, even accounting for inflation. If a new job is not an option, think about the best ways to ask your employer for a raise.

2. Decrease your debt

Saving up to purchase a home isn’t just about growing your bank account. It’s equally important to focus on paying down the amount of money you owe on credit cards, student loans and car payments. By lowering your debt-to-income ratio, you’ll be in a better position to qualify for a mortgage down the line.

3. Improve your credit score

The higher your score, the lower mortgage rate you’re likely to qualify for when you’re ready to buy. Most mortgage types require a minimum score of 620 to qualify, but higher is better. So pay your bills on time and do what you can to raise your credit score before you start house-hunting — it could save you a lot of money in the long run.

4. Focus on your local area

Real estate is hyper-localized, varying greatly not just by region or state but even within the same city. Broad national trends are important to bear in mind, but as you budget and save to buy a house, focus on conditions in the specific neighborhood where you’re looking. This is where a knowledgeable local real estate agent can really shine: Agents are experts in their markets, so find one you like and let their expertise work for you.

It’s been a wild real estate ride over the last few years. After a red-hot market characterized by very low interest rates and frenzied bidding wars, mortgage rates increased to their highest level in more than 20 years. The average rate for a 30-year mortgage more than doubled between August 2021, when it was just 3 percent, and October 2023, when it reached 8 percent. (Rates have now dipped a bit and were back below 7 percent as of August 2024.)

As you might imagine, this trend has led to a slowdown in buying activity. Even so, with inventory still scarce, home prices have hit new records and remain unaffordable in many parts of the U.S.

Real estate forecasts for the next 5 years

There are plenty of predictions about where the housing market is going this year. But what about further out? After all, buying a home often requires long-term planning. We asked several industry experts to peer into their crystal balls and give us their real estate forecast for the next five years. Here’s looking at you, 2029.

The current housing market
  • Home sale prices: The country’s median existing-home sale price in June 2024 was $426,900, according to the National Association of Realtors (NAR) — the highest median price NAR has ever recorded. For new-construction homes, National Association of Homebuilders (NAHB) data shows that June’s median sale price was only slightly lower at $417,300.
  • Inventory: The supply of homes for sale is increasing, but remains too low to meet demand. Per NAR data, the inventory of unsold existing homes was at a 4.1-month supply in June. It’s typically believed that a balanced market would require a 5- to 6-month supply.
  • Days on the market: With high prices and mortgage rates putting a purchase out of reach for many, homes are taking longer to sell. In June, the median length of time homes spent on the market was 22 days, up from 18 days one year earlier, per NAR.
  • Homes sold: Nationwide sales of existing homes fell 5.4 percent in June 2024, per NAR. Meanwhile, the pace of new single-family home sales fell 16.5 percent in May 2024 from a year earlier, per NAHB data.
  • Mortgage rates: According to Bankrate’s weekly survey of large lenders, the average 30-year mortgage rate as of August 7 was 6.59 percent.

Forecast for mortgage rates and types

Lawrence Yun, NAR’s chief economist, says mortgage interest rates have likely crested, at least for the rest of 2024. “I believe we’ve already reached the peak in terms of interest rates,” he told attendees at a November NAR convention. Within two years, he says, the rate should return to 5.5 or 6 percent, assuming the federal budget deficit does not put permanent upward pressure on all borrowing costs.

Because rates are high, Yun foresees a greater interest in adjustable-rate mortgages through next year. However, after that, he predicts 90 percent of Americans will return to the traditional 30-year fixed-rate mortgage.

A fixed-rate mortgage provides the certainty borrowers want.— Greg McBride, Bankrate Chief Financial Analyst

Greg McBride, CFA, Bankrate’s chief financial analyst, thinks the 30-year fixed will remain the dominant mortgage product. “A fixed-rate mortgage provides the certainty borrowers want,” he says. “It is the best gauge of affordability, and there is very little upfront advantage to taking an adjustable-rate mortgage, as those rates aren’t much lower than fixed rates right now,” he says.

Predictions for home prices

Yun foresees no major changes in purchase price tags on a nationwide level next year, with fluctuations of only about 5 percent one way or the other. Overall, in five years, he expects prices to have appreciated a total of 15 to 25 percent.

McBride predicts home prices will average low- to mid-single-digit annual appreciation over the next five years. This rate of appreciation, he says, is consistent with the long-term average of home prices increasing by a rate that hovers a percentage point above the inflation rate.

Will the housing market crash?

While it may show bubble-like characteristics, Yun does not expect the residential real estate market to burst. He does predict that sales will be at a low point next year, with only 5.3 million units sold, but he foresees a gradual increase afterward, up to an annual 6 million units by 2027.

Despite today’s higher mortgage rates, home prices are still strong, he adds. Even if they decline 5 percent or even 10 percent next year, that’s not anywhere close to crashing, which he says is characterized by about a one-third drop.

A crash happens with oversupply. It will not happen, because there isn’t enough inventory.— Lawrence Yun, Chief Economist, National Association of Realtors

“A crash happens with oversupply,” Yun says. “A 30 percent decrease will not happen, because there isn’t enough inventory.” He believes the housing supply will balance out within five years.

Many other experts agree that there is no danger of an imminent housing market crash. Not only is inventory too scarce, as Yun notes, but lending standards today are much stricter than they were back in the days of the Great Recession. Mortgage lenders are largely not issuing loans that borrowers can’t really afford anymore, which helps keep foreclosure rates low. And those who do borrow have excellent credit: a very high median score of 772, according to the Federal Reserve Bank of New York.

Will we shift into a buyer’s market?

Yun expects the overall seller’s market to continue as long as housing inventory remains low. By five years out, though, he foresees more of a balanced market, where neither the buyer or seller holds a significant advantage. Instead, the negotiating power between parties will be more equal and depend on the individual case.

Caroline Feeney of Narrative Bent, a former director of content and executive editor at real estate site HomeLight, says the shift away from a seller’s market has already begun. She also expects a balanced market within a few years, and says that 55 percent of HomeLight agents surveyed said the markets that heated up the fastest during the pandemic — including Austin, Phoenix and Boise — would likely be the first to cool down. This scenario may already be playing out: The median home sale price in Austin was down 6.2 percent year-over-year, according to June 2024 Redfin data, and homes there were taking a long 50 days to sell.

Where will new homes be built, and what kind?

With hybrid work schedules now common and commuting no longer as relevant, Yun predicts the suburban market will remain strong. He expects growth in Sun Belt areas with rising populations, including the Carolinas, Florida, Texas and Tennessee.

Backing up his prediction, Danushka Nanayakkara-Skillington, assistant VP of forecasting and analysis for NAHB, says 50 percent of new single-family construction is in the South. Southern markets scored big in Bankrate’s 2023 Housing Heat Index as well.

The number of multi-family homes under construction has increased over the last few years — Feeney credits this growth in part to their lower price tags and the pressure on municipalities to relieve shortages and provide more affordable housing. Still, with high mortgage rates and inflationary building material prices, Nanayakkara-Skillington expects the multi-family market’s growth to stabilize within a few years, with the number of new housing starts decreasing.

Tips for preparing to buy a home

Buying a house is a major commitment, and starting to save five years in advance is perfectly reasonable. Here are some strategies to get your finances in shape and save for a down payment so you can be a homeowner by 2029.

1. Think about earning power

Switching jobs is usually the fastest path to a significant salary bump, so be willing to look for other opportunities to increase your earning power. According to a 2022 study from the Pew Research Center, 60 percent of workers who switched jobs earned more money in their new roles, even accounting for inflation. If a new job is not an option, think about the best ways to ask your employer for a raise.

2. Decrease your debt

Saving up to purchase a home isn’t just about growing your bank account. It’s equally important to focus on paying down the amount of money you owe on credit cards, student loans and car payments. By lowering your debt-to-income ratio, you’ll be in a better position to qualify for a mortgage down the line.

3. Improve your credit score

The higher your score, the lower mortgage rate you’re likely to qualify for when you’re ready to buy. Most mortgage types require a minimum score of 620 to qualify, but higher is better. So pay your bills on time and do what you can to raise your credit score before you start house-hunting — it could save you a lot of money in the long run.

4. Focus on your local area

Real estate is hyper-localized, varying greatly not just by region or state but even within the same city. Broad national trends are important to bear in mind, but as you budget and save to buy a house, focus on conditions in the specific neighborhood where you’re looking. This is where a knowledgeable local real estate agent can really shine: Agents are experts in their markets, so find one you like and let their expertise work for you.

Source: bankrate.com ~ By: Dina Cheney ~ Image: Canva Pro

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What Is an FHA 203(k) Loan?

What Is an FHA 203(k) Loan

If you want to purchase and restore a fixer-upper, this loan might be the ideal choice.

These loans have more lenient down payment and credit score requirements than most conventional loans.

Key Takeaways

    • FHA 203(k) loans are a unique home loan option that allows you to borrow funds for both your home purchase and renovations.
    • Because FHA 203(k) loans are government-backed, they can be easier to qualify for than conventional loans.
    • These loans are designed for more significant costs like structural repairs or major remodels, rather than minor updates.

If you’re looking to buy a home that needs a lot of work, you might be able to get it for a discounted price. However, the short- and long-term repair costs could still end up breaking your budget.

That’s why a Federal Housing Administration 203(k) loan might be something to consider. It allows you to combine home purchase and renovation costs all in one loan. After completing the renovations, you’ll have created instant equity based on the increased value.

Although fewer lenders offer government-backed loans – because of the added oversight and paperwork – here is a look at how these loans operate and why it might be worth the extra legwork to find one.

How Does a 203(k) Loan Work?

The loans, which are officially called 203(k) Rehabilitation Mortgage Insurance, allow homebuyers to finance the cost of the purchase plus the renovations in one loan, or for homeowners to finance the rehabilitation of their current home.

The loans can be especially attractive to first-time homebuyers because the credit score and down payment requirements are more lenient than for most conventional loans. If you have a credit score of more than 580, you can finance up to 96.5% of the purchase and renovation. If your score is in between 500 and 579, your down payment would have to be at least 10%.

Also, if the home needs some work before the homebuyers can move in, the loan gives them a chance to “customize and personalize their home the way they want it,” says Brad Smith, senior vice president and director of renovation lending at CrossCountry Mortgage.

There are two types of 203(k) loans:

    • Limited. The loan allows up to $75,000 in financing for nonstructural repairs and upgrades, and there is no minimum amount you have to borrow. The money can be used toward property repairs or to prepare the home for sale. Examples of upgrades would include a kitchen remodel or new carpeting. You won’t be able to do a major renovation with this loan. The rehabilitation period for the limited program is nine months.
    • Standard. A wider range of remodeling options is possible with this loan, including structural repairs. It requires a minimum loan of $5,000 and must also involve a 203(k) consultant who will work with the lender and borrower. There is no specific dollar limit on the loan, but the combined home purchase and renovation loan cannot exceed the FHA mortgage limit for the area. The standard program has a longer rehabilitation period of 12 months.

Limited 203(k) Loan

Standard 203(k) Loan
Loan Limit $75,000 None
Type of Renovation Non-structural renovations Major renovations
Rehabilitation Period Nine months 12 months
Consultant Required No Yes

With a standard 203(k) loan, part of the loan goes to pay the home’s seller, and the rest is kept in an escrow account to pay for the repairs.

Who Qualifies For an FHA 203(k) Loan?

Qualifying for an FHA 203(k) loan is similar to getting any other mortgage, though it might be easier since it is a government-backed loan. Like other FHA loans, 203(k) loans have lower credit score and down payment requirements.

“FHA loans can be approved with credit scores as low as 500, but some lenders may have higher qualifications,” explains Will Doty, certified financial planner and executive advisor at Modern Wealth Management. Other factors, such as your debt-to-income ratio, will also be considered.

Even if you qualify for an FHA 203(k) loan based on your creditworthiness, you’ll have to follow specific criteria when it comes to the renovation projects you plan to use funds for and have a certified inspector review the property if you choose the standard option.

What Projects Can a 203(k) Loan Be Used For?

According to Mason Whitehead, branch manager with Churchill Mortgage, FHA 203(k) loans are best used for more extensive renovations rather than small updates.

“I typically only recommend these loans in cases where significant renovations/remodeling is needed because there are higher fees and rates involved,” Whitehead says. “So this is not a project you want to use if you just need to do some paint and carpet updates.”

The types of work that could be done with a 203(k) loan include:

    • Addressing health and safety issues
    • Putting on a new roof, gutters, and downspouts, or adding to them
    • Replacing floors
    • Making structural changes or reconstructing parts of the house
    • Allowing for better access for a person with a disability
    • Improving energy conservation
    • Landscape work
    • Home modernization and appearance improvements

“If the repairs are minor and not health/safety issues or things that an appraiser will notate as deferred maintenance, then I suggest you just save and budget for those repairs after you close on the house,” Whitehead adds.

How to Get a 203(k) Loan

If you’re interested in a 203(k) loan, your first step will be to find a lender who offers one. Not every lender offers FHA loans, or, if it does, the lender might not provide the 203(k) option.

Check the Department of Housing and Urban Development lender search, which will give you a list of all lenders who have offered a 203(k) in the last year.

You will work with the lender on the next few steps, as you review what needs to be renovated on the house and determine the size of the loan and scope of the project.

Conduct Inspections

Inspections are vital for homes purchased with a 203(k) loan because you have to identify the necessary health and safety upgrades as well as other updates that you would like to make. If you’re pursuing a standard 203(k) loan, you’ll need to bring on a HUD-certified consultant to ensure FHA standards are met. Consultants are optional for the limited program. For both programs, however, you can finance consultant fees in your mortgage.

“The ideal process is to include that HUD consultant to conduct the upfront inspection on the property to identify all the repair items,” Smith says.

A certified consultant’s duties include visiting the home, detailing the work that needs to be done, and performing inspections.

The inspection is key to itemizing all the home repairs needed because “you only have one chance to do it right,” Smith says. You can’t add money for additional repairs once the initial financing is done. If you have to reallocate project funds to pay for a health and safety issue identified once the renovation has started, it could take away funds for something else, such as a bathroom upgrade, he adds.

Get an Estimate and Hire a Contractor

Use the consultant’s report to get bids from contractors, Smith says. You’ll usually hire a general contractor who can work with as many subcontractors as needed to complete the work, or you can hire individual specialty contractors such as a roofer, plumber, and electrician.

“You need to hire somebody who understands the type of renovations you’re looking to do and has done those in the past,” says Ron Haynie, senior vice president of mortgage finance policy for the Independent Community Bankers of America.

Conduct an Appraisal

Once you have defined the scope of the renovations, the lender will hire an FHA-approved appraiser who will estimate the home value based on completion of all repairs and upgrades. The value will be either the property’s value before rehabilitation plus the cost of the renovation or 110% of the appraised value after the upgrade – whichever is less.

An appraisal that is much higher than the current value of the home indicates that the repairs will pay off for the homeowner. If you buy a home that needs a lot of work in a neighborhood that has excellent homes and make the necessary repairs, you can create some equity for yourself after closing, Smith says.

Once the value is set, the money reserved for the renovations is set up in the borrower’s name in a custodial bank, Smith says. Disbursements to the contractor are made as work is completed and inspected. The amount will also include a contingency reserve, which could be about 10%.

Set Aside Funds For Additional Problems

“When you go into it, you’re thinking one thing,” says Haynie. “As the project progresses, it will change, and you need to be prepared for that. That might mean you need to have more reserves on hand.”

If the work on the home is so extensive that you can’t live in it during renovations, you’ll be able to finance up to six months of mortgage payments so you won’t have to pay for your current home and the new one at the same time, Haynie says.

Refinancing With an FHA 203(k) Loan

FHA 203(k) loans can also be used to refinance your home and make renovations, in addition to new home purchases. The process is largely the same, with the same qualifications for limited or standard 203(k) loans.

Rather than some cash being used to pay the home’s seller, it will be used to pay your existing mortgage. The remainder is similarly kept in escrow to pay for repairs as they are completed.

Pros and Cons of 203(k) Loans

Pros

    • FHA loans, including 203(k) loans, are particularly attractive for first-time homebuyers thanks to their more relaxed credit score and down payment requirements.

    • FHA loans sometimes have lower closing costs than traditional mortgages.

    • FHA 203(k) loans allow you to access funds for repairs rather than have to take out an additional loan.

Cons

    • For most FHA-insured mortgages, you’ll need to pay a one-time upfront mortgage insurance premium and an annual insurance premium that’s collected in monthly installments.

    • An FHA 203(k) loan can only be used for a primary residence.

    • You must work with a HUD-certified inspector and FHA-approved appraiser during the renovation process.

Alternatives to an FHA 203(k) Loan

If you’re a first-time homebuyer, you might be caught up in visions of HGTV-like renovations for the home you plan to buy, but it could be overwhelming to move into your new home while dealing with a major reconstruction project.

“Anybody who does any kind of renovation in their home quickly realizes the project grows beyond what you thought it was going to be,” says Haynie. “When you start tearing down walls, you’re going to find all kinds of stuff that changes your original plan.”

One option some lenders would prefer to a 203(k) loan is a separate, dedicated construction loan to fund renovations. For example, community banks do a lot of construction lending and might keep the loan in their portfolio, which gives the borrower more flexibility, Haynie says.

A separate construction loan also allows the homeowner to avoid FHA rules – which include the payment of home mortgage insurance during the loan. Because you won’t need to start renovations right away, you’ll get time in the home to figure out what you really want to change.

A standard refinancing is another option for homeowners who want to pay for a major renovation, rather than a 203(k) refinance. A bank could arrange a cash-out refinance with the homeowners and help them manage the process of paying for the project, Haynie says.

Homeowners who don’t want to refinance could:

    • Tap home equity. Take out a home equity loan or get a home equity line of credit. If you have enough equity in your home, this could be an ideal option because of current low interest rates. The interest might also be tax-deductible.
    • Consider a personal loan. The interest rates are generally higher on unsecured personal loans than home equity loans, but it’s a good option if you don’t have enough home equity but can handle the monthly payments.

Whether you’re a prospective or current homeowner, you might find a major renovation to be too expensive. With many homeowners deciding to expand their current homes to get extra space for offices and other needs, the price for workers and materials is going up, Haynie says. The best option might be to buy a home that has everything you want already.

“Look at all your options,” says Haynie. “Ask yourself: ‘What is it I really need to get out of this renovation, and is it worth it?'”

Source: money.usnews.com  ~ By: Bob Musinski ~ Image: Canva Pro

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What Is Real Estate? A Definition And A Guide

What Is Real Estate? A Definition And A Guide

Interested in buying a home so you no longer have to send rent checks to your landlord each month? This thought isn’t surprising: real estate is attractive to both investors and those who want to swap renting for owning.

But while real estate is an attractive alternative or addition to stocks, bonds and mutual funds, it does come with risks and challenges.

Here’s a look at how real estate works, what makes it an attractive investment and the steps and research you need to take whether you’re buying a home for you and your family or making an investment to boost your bottom line.

Real Estate Definition

When you boil it down to the basics, real estate has a simple meaning. It’s a piece of land and the property – such as a house, office building, apartment, strip center or warehouse – that sits on it. These structures can be both above and under the ground. For instance, if you own a strip center with an underground parking lot, that parking lot would be part of your property.

Real Property Definition

If you’re buying real estate, you should also understand what the term real property means. Real property is the land and any structures affixed to it that are factored into the value of the property. For instance, if you own a home, its garage would be considered part of its real property. A movable picnic table in your backyard, though, wouldn’t. Real property also gives you the right to use your property, including selling it or leasing out space in it, as you wish.

Multiple types of real estate are available – whether you’re buying a home for yourself or to rent out to others. No matter what type of real estate you purchase, the hope is that it appreciates with time so that when you do sell, you earn a profit. Be careful, though: While real estate can be a sound investment over time, appreciation isn’t always guaranteed.

Residential Real Estate

As its name suggests, residential real estate is any type of real estate where people can live, including single-family homes, townhouses, condominiums and multifamily homes.

Many people purchase residential real estate as a place to live. But you can treat residential real estate as an investment, too. You might buy a single-family home, renovate it and then sell it for a higher price. You can also buy a single-family home and rent it to tenants, collecting monthly payments to pay off the mortgage.

Even if you buy residential real estate primarily as a place to live, your home might still turn out to be a solid investment if it’s worth more when you sell than when you purchased it.

Commercial Real Estate

Commercial real estate is any property that provides a business service and isn’t used as a living space. This kind of property includes everything from office buildings and shopping malls to restaurants, clothing stores, movie theaters, gyms and gas stations.

You can earn money by holding onto the commercial property until it increases in value, then selling for a profit. Or you can earn money by leasing space in your property to business tenants. For example, if you owned a retail strip center, you’d charge that pizza restaurant monthly rent to lease space in it. If you owned an office building, you’d charge companies to lease space in the building.

You can also use commercial real estate as a home base for your own business. You might own an office storefront if you run an insurance business, for example.

Land

You can also buy land, which can be defined as real estate that has no buildings or structures on it. If you purchase land, you can then develop or build whatever you want on it, as long as you follow the local zoning codes and regulations for that lot.

Industrial Real Estate

Industrial real estate is any structure or piece of land primarily used for manufacturing facilities, warehouses, distribution centers and factories. This type of real estate can be pricey, but it’s also valuable.

As people spend more time shopping online, and as they expect the products they buy to show up at their doors in less time, the demand for industrial real estate has only grown. This makes this property type especially valuable since the odds of it appreciating in value are high.

Make Your Offer Stand Out!

If you’re ready to buy real estate – whether as a primary residence or an investment – it’s important to understand the basics of how this business works from start to finish.

Development And Construction

New buildings – everything from homes and office buildings to apartment towers, distribution centers and shopping malls – get their start during the development and construction phase of real estate. This is when development companies, municipal officials, architects, contractors, engineers and builders work together to create a new real estate project.

If you want to buy a home, it’s usually easier to purchase one already built. Buying land and building a new home on the site, though, can leave you with a home that more closely meets your housing needs. After all, you can tell your architects and builders exactly what you want.

Working With Brokerages And Real Estate Agents

You can purchase or sell real estate on your own. But navigating this process – finding the right property, qualifying potential buyers, signing documents and handling negotiations – can be time-consuming and confusing. So, this is where real estate brokerages, real estate agents and REALTORSⓇ come in.

Real Estate Agents And REALTORS®

Real estate agents are professionals who work with both buyers and sellers. Real estate agents who are members of the National Association of REALTORSⓇ are known as REALTORSⓇ.

Real estate agents help market properties, handle the buyer and seller negotiations and make sure all the right paperwork is signed during a real estate transaction. They don’t do this for free; they usually get paid a percentage of a property’s sale.

Real Estate Brokers

All real estate agents must work under a real estate broker. A real estate broker holds a real estate license and has extensive knowledge of the real estate industry. The term “brokerage” and “broker” often get confused with one another, but a broker is a real estate professional, and a brokerage is a real estate firm.

Property Management

If you buy real estate as an investment, you might opt to pay for a property management service. As the name suggests, such services manage rental properties that you purchase but don’t live in. They handle everything from maintenance and rent collection to emergency calls from renters at 2 a.m.

Let’s say you own an apartment complex in another state. You might hire a property management company to handle the maintenance of that property. This company would hire a landscaping service, cleaning service and security service. Your property management company might also screen potential tenants, market units when they come up for rent, and handle evictions if tenants stop paying their monthly rent. If a renter’s furnace conks out, one of your property managers would take the call and send out a repair service.

Working With Mortgage Lenders

Few people can purchase real estate with cash. Most people will have to take out a mortgage loan. This is where mortgage lenders come in.

If you want to buy a single-family home for a primary residence but lack the cash to make this purchase, you’ll work with a mortgage lender. You’ll provide this lender with income-verifying documents such as your most recent paycheck stubs, bank account statements and tax returns. Your mortgage lender will also check your three-digit credit score and your three credit reports, all to make sure you can pay back the money you borrow.

If you’re approved for a loan, your lender will pay the sellers of the property you’re buying. You then pay back your lender every month with a mortgage payment. You’ll have to pay interest on these payments, which is how lenders make a profit.

Lenders don’t originate loans for free but charge a range of fees to close your mortgage loan. Fees vary, but you can expect to pay 3% – 6% of your home’s purchase price in closing costs. On a home costing $200,000, then, you may expect to pay $6,000 – $12,000 in closing costs.

Investing In Real Estate

Ready to tackle real estate investing? Be prepared to do your research.

The key to maximizing your real estate investment is to study your local market. If you want to purchase a single-family home, for instance, you should study housing market indicators such as the median sales price of homes in your neighborhood, how long it takes homes to sell and whether home values are on the rise.

The same is true if you want to invest in commercial real estate such as a warehouse, office building or strip mall. You’ll need to research how much other owners are charging tenants for rents, how much traffic pours through retail areas and how high the vacancy rates are for neighboring office buildings or strip centers.

The more research you do, the better your odds of investing in a property that’ll increase in value over time and bring in a steady stream of rental income.

Ways To Invest In Real Estate

Of course, you can employ different strategies for investing in real estate. Let’s take a look at a few:

House Flipping

When some investors purchase single-family homes for a low price, they then flip these properties and sell them for a higher price. The key is to purchase a home for a low enough price and avoid overspending on improvements so you make a solid profit when you sell.

Rental Properties

You can buy a rental property and rent out apartment buildings, single-family homes, condo buildings and commercial properties. Your monthly rent collections might cover part or all of your mortgage payment, offsetting the costs of holding onto real estate while you wait for its value to rise. If you collect enough rent, you might make a monthly profit without having to sell your investment.

REITs

Buying into REITs – real estate investment trusts – is an easier way to invest in real estate. REITs are companies that own real estate, both residential and commercial. When you buy into a REIT, you purchase a share of these properties. It’s like investing in mutual funds, but instead of stocks and bonds, you’re investing in real estate. You earn money from REITs through regular dividend payments and when the value of a REIT increases. If the value goes up, you’ll earn a profit when you sell.

Real Estate Crowdfunding

In real estate crowdfunding, investors pool their money and then use it to invest in REITs, giving people who might struggle to come up with enough money to invest on their own a chance to invest in real estate.

The Pros And Cons Of Real Estate Investing

It’s easy to look at the advantages of investing when a big payout could be waiting in the end. But before you make an investment, let’s take a look at both the advantages and disadvantages of real estate investing.

The Pros Of Investing In Real Estate

Investing in real estate has plenty of potential advantages. By investing, you can:

  • Expand your investment portfolio
  • Bring in passive income
  • Live in your real estate investment
  • Get tax breaks

The Cons Of Investing In Real Estate

While investing in real estate can prove profitable, it can also:

  • Be expensive to start
  • Require selling property to gain funds
  • Lack guaranteed profits

Real Estate FAQs

Keep reading below for answers to some frequently asked real estate questions.

What is a real estate broker?

As mentioned above, a real estate broker is essentially a step above a traditional real estate agent. They have additional education and have passed the broker license exam, allowing them to employ other real estate agents under their license.

How can I finance a real estate purchase?

Real estate is most often financed through a mortgage. There are many different types of mortgages and lenders, so if you’re thinking about purchasing real estate, be sure to research your options and find the ones that best fit your situation.

What is digital real estate?

Digital real estate is any website or other online asset. This internet property can be bought and sold similarly to traditional real estate.

The Bottom Line

Real estate involves many terms that are important to understand, and investing is one of them. Investing in real estate can be a smart financial move if you understand your market, are willing to take on the risks, and borrow only what you can afford to pay back.

Source: rocketmortgage.com ~ By: Dan Rafter ~ Image: Canva

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These Are the Tax Breaks You Can Get When You Buy a House

Tax Breaks You Can Get When You Buy a House

Buying a home is expensive, but these tax credits and deductions can help you recoup some costs.

Key Takeaways:

  • There are several tax breaks for homebuyers that can help make homeownership more affordable.
  • Tax credits apply to the tax owed, while tax deductions reduce taxable income.
  • Some tax benefits extend beyond the initial purchase of a home.

One of the biggest benefits of homeownership is tax breaks. If you’re a homeowner, tax credits and deductions could save you thousands of dollars per year. But are there tax credits for buying a house? And what about deductions?

To help you come next tax season, here are tax credits and deductions you can get when you buy a house, and additional tax breaks that come with homeownership.

Both tax credits and deductions can help a homeowner save money on their tax bill, but they work differently. “Both lower one’s taxes, but a credit applies to the tax owed, while a deduction applies to one’s income that is subject to tax,” says Asher Rubinstein, partner and tax, asset protection and trusts and estates attorney at Gallet Dreyer & Berkey in New York City. “In other words, it’s a matter of timing and when the tax discount is applied.”

There are also refundable and nonrefundable tax credits. According to the IRS, if your tax bill is less than the refundable credit, then you get the difference back in your refund.

Credits are typically much more valuable than deductions. “For example, someone with a $1,000 tax credit in the 20% tax bracket will see their tax bill reduced by $1,000. Someone with a $1,000 tax deduction will only see $200 in tax savings,” explains Eric Presogna, founder and CEO of One-Up Financial and a certified financial planner public accountant.

There are two types of deductions available to all taxpayers: standard deduction and itemized deduction. If you take the standard deduction, you reduce your taxable income by a set amount. For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. “There is no need for the taxpayer to keep records of individual tax deductions if the taxpayer takes the standard deduction,” Rubinstein says. Itemized deductions are individual tax deductions that could potentially add up to more than the standard deduction.

According to Presogna, homeowners should only take the standard deduction when they don’t have enough itemized deductions to exceed the standard. “With the SALT deduction (state, local, real estate taxes) currently limited to $10,000, a married couple would need more than $19,200 in mortgage interest, charitable donations and other qualifying deductions in order to warrant itemizing,” Presogna says.

The IRS has specific rules regarding how homebuyers qualify for certain tax credits. There are also credits that are only available to first-time buyers. You generally qualify as a first-time homebuyer if you’re purchasing your first home. However, you may still qualify if you’ve not owned a home for three years prior to the date of purchasing the new home for which the credit is claimed, according to the IRS. That home must be your principal residence.

One federal tax credit available to first-time buyers is through the Mortgage Credit Certificate (MCC) program. This program was designed to help lower-income families afford a home. The MCC program allows buyers to claim a dollar-for-dollar tax credit for a portion of the mortgage interest paid per year, up to $2,000. Eligible individuals must be first-time homebuyers, use the house as their primary residence and meet the program’s income and purchase price requirements.

There may also be tax credits available through your state. These buyer programs vary from state to state. You can research what may be available in your local area or look through the U.S. Department of Housing and Urban Development’s directory of local homebuying programs.

There are more tax deductions available to homebuyers and homeowners than there are tax credits, but Presogna says it depends on whether you itemize your deductions or take the standard deduction. Regarding homeownership, “If you have enough deductions to itemize, real estate taxes, home equity loan and mortgage interest are some of the larger deductible costs,” Presogna adds.

Keep in mind that not everything is deductible. According to Rubinstein, most costs associated with homeownership do not qualify for any tax benefits, including cosmetic upgrades, homeowners insurance and your mortgage principal, to name a few.

Here are several tax deductions buyers may qualify for after purchasing a home:

First-time homebuyer savings account (FHSA). Some states offer tax benefits to first-time homebuyers to open an FHSA. This is a specific type of savings account that helps first-time buyers save up to $15,000 or $30,000 per year for a down payment, closing costs and other expenses related to their home purchase. You can deduct the annual savings from your state-taxable income, but limits vary by state.

Mortgage interest deduction. This is a deduction for interest paid on mortgage debt, but you will need to itemize your deductions to qualify for this tax break. “Under current law, this applies to loans up to $750,000,” Rubinstein says.

Property tax deduction. Through 2025, taxpayers who itemize their tax deductions can claim a deduction on their federal tax return up to $10,000 each year for local property taxes paid, according to Rubinstein. “When the tax law changed in 2017, this was very controversial, because taxpayers previously had an unlimited deduction,” he says. “The $10,000 limit is significant for taxpayers in high-tax states like New York and California.”

Mortgage points deduction. Per IRS guidelines, mortgage points are fees paid to take out a mortgage. This also includes origination fees or discount points purchased in order to reduce the interest rate.

Home office deduction. “If you’re a business owner or self-employed and work from home, you may be entitled to a deduction for the portion of your home used for business,” Presogna says. However, Rubinstein warns that this is the most audited deduction due to the amount of taxpayers who try to claim this deduction. “The IRS has specific rules to follow. For instance, you can’t work from home for an employer. You have to use a dedicated room and you have to use it regularly. And there are square footage limitations,” Rubinstein explains.

Many tax benefits extend beyond the initial purchase of a home. The IRS offers some tax benefits for certain capital improvements, such as renovating your home office, making energy-efficient improvements or making changes due to a medical condition. If you take out a home equity loan to buy, build or improve your home, you could qualify for the home equity loan interest deduction. The IRS would classify the interest you pay on the borrowed funds as home acquisition debt, which may be deductible.

First-time homebuyers could also potentially qualify for a traditional or Roth IRA penalty waiver. If you meet IRS qualifications as a first-time buyer and take out $10,000 or less, you can use those funds toward a down payment without a 10% tax penalty if you close within 120 days. However, the actual withdrawal may still be considered taxable income.

One of the biggest tax breaks for a homeowner is the exclusion of capital gains when they sell their home. Capital gains are the profit from the sale of the home. For married couples, the first $500,000 in capital gains are not subject to tax. For individuals, the first $250,000 in capital gains are not subject to tax. “However, the home has to be used as one’s personal residence for two out of the last five years in order to get this tax break,” Rubinstein says.

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

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5 Things to Not Ignore At a Home Showing

Don't ignore these at an open house

There are common things you should look for at a showing, like dripping faucets, but the less obvious things are sometimes revealing as well.

Looking at homes can be overwhelming, especially if it’s your first try at buying a place of your own. Most homes have some flaw, small or large, and sometimes you can pick up on them during a showing or an open house. While most problems can be corrected with enough money, time, and patience, being aware of these items will make the process – and your ownership – a lot easier.

Here are five things real estate agents say you should never ignore at a showing:

1. Clutter

Sometimes, clutter is just the end result of a busy life or too many things and not enough places to put them, but sometimes it’s covering up things you should really know about.

“Even though clutter is usually just clutter, it could be hiding some things,” says Laura Carroll Duckworth, a real estate agent with Flat Fee Redefined, an agency brokered by eXp Realty LLC in Springfield, Missouri. “I had one where the seller refused to move a lot of their stuff for the inspection, and then it turned out there was termite damage behind it.”

Termites are bad enough, but they’re not the only bugs you may come across living in a cluttered home. They’re all going to require an exterminator at minimum, and the problem could be a lot worse than you imagine.

“I was showing a foreclosure and they didn’t do a trash out of the property,” says Tammy Nevin, real estate agent with First Weber Inc. in Tomah, Wisconsin. “There was debris and garbage everywhere. It looked like they just picked up and walked out. The stench was a combination of cigarettes and cats. As I was walking through and I looked closer, I noticed lots of little bugs jumping around – they were fleas. We ran out of there pretty quickly.”

2. Room Deodorizers

Homeowners often will use plug-in deodorizers or other air fresheners to make their home smell welcoming to a potential buyer. But if you smell something more than just the air freshener, it’s time to look a little closer.

“Some people have air fresheners and room sprays and the buyer might wonder, ‘Oh, what are they trying to cover up?’” says Duckworth. “Sometimes they’re not trying to cover up anything, they just want the house to smell good for the buyers. Other times, there are layers to that scent that might indicate problems with mold, rodents or insects.”

3. Area Rugs

While it might not occur to you that a seller could be hiding damage in plain sight, it’s not uncommon. Area rugs should always be considered suspicious until you’ve seen what’s underneath.

“One of my clients purchased a home about seven years ago and it had beautiful hand-scraped hardwood floors throughout,” says Neil Brooks, real estate agent with My Home Group in Scottsdale, Arizona, and an agent within the Veterans United Realty Network. “During the showing, the owner was there and took us on a tour. When shown the living room, he pointed out the area rug and mentioned that it was expensive and placed it there so their grandchildren could play comfortably. He added that he would leave it for my client because it fits nicely in the room.

“My client decided to purchase the home, and upon moving in, moved the carpet to buff the floors to find out that the rug covered a three-foot area where the previous owners’ dog chewed the floor down, exposing the slab.”

4. The Neighborhood

Most neighborhoods show well enough during the daytime when everyone is at work. It still pays to familiarize yourself with the neighborhood you’re considering, especially if a house is having trouble selling.

“One major red flag is not the house itself, it’s the neighbors,” says Bob Thompson, a real estate agent with American Homes Of Eastern VA, Inc., in Hampton Roads, Virginia. “I encourage all my buyers to do what I call the Friday night drive-by. Every neighborhood looks great at 3 p.m. on a Tuesday, but weekends are when you find out what people are really like. That’s important because no one wants to get stuck next to the loud drunk neighbors or racist neighbors.”

5. DIY Repairs

Homeowners often do home repairs, and to a high quality standard, because they care about their homes and want to take care of them to the best of their ability. But sometimes, no matter how hard someone may try, they might just not be cut out for DIY. When those repairs are obvious, it’s something to pay close attention to.

“When you can tell the homeowner did their own repair work on something and did a poor job on it, that’s important – what else did they attempt to repair?” says Thompson. “Also be sure to look at minor repairs on a rehabbed property. If they did poor work on the small things, did they do poor work on the big things?”

What if You Spot a Problem at the Showing?

A showing is just a chance to get to know a house that you might be interested in. It’s an opportunity to see all the home’s visible red flags and decide how much those things bother you. This is why it’s so important not to get too serious about a house right away, even if you think it’s your dream home.

“Try not to fall in love with a home initially, just date it until you have a thorough understanding of what you’re buying,” says Brooks. “It’s a Realtor’s duty to be the voice of reason and point out all of the potential issues and err on the side of caution in order to protect their client.”

Once you’ve identified the issues that may or may not be serious enough to fall out of love with a property, it’s time to put pencil to paper. Ignoring issues won’t solve them, but every problem related to a home can be fixed, if you go in with your eyes open.

“Every issue can be overcome with time, money, expertise or a combination of all three,” says Aimee Thayer-Garcia, broker-associate at Montalvo Homes & Estates in Santa Cruz, California. “Ignoring red flags at a showing can set buyer, seller, and their agents up for a challenging escrow. Every transaction has its own speed bumps – a huge part of the work as an agent for buyer clients is preparing for them and setting expectations.”

Source: realestate.usnews.com ~ By: Kristi Waterworth ~ Image: Canva Pro

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What do home inspectors look for? 6 key things

Home Inspection

When you’re under contract on a new house, it’s easy to fall in love with its potential. But before you linger on cloud nine too long, you’ll need the reality check of a home inspection. During a home inspection, a professionally trained inspector visually and physically evaluates the entire structure, from the foundation up to the roof, looking for potential defects, safety issues, environmental issues, or other red flags.

In particularly competitive markets, some buyers consider waiving the home inspection to make their offer stand out. But think very carefully before doing so: A house is most likely the largest purchase you’ll ever make. The last thing you want to do is invest a ton of money only to find out your new home needs extensive repairs or remediation. 

That’s why a home inspection is important: A good inspector can spot minor problems before they become major ones, and speak to the quality of construction and maintenance the home has been through. A home inspection helps you know as much as you can about the property before buying it, says Kenneth Carr of Precision Inspections, a licensed home inspector in New York, Connecticut, and Massachusetts. “It is part of due diligence,” Carr says. “Just as you have your attorney review the contracts, you should have your home inspector review the property, because there may be something there that you don’t have the expertise to know.”

What do home inspectors look for?

“We are looking for things that aren’t working as designed,” says Carr. “We have to describe what’s there, what may be missing, and things that are either not working as they should or not working at all, and bring it to the attention of the buyer.” Many inspectors even recommend that homebuyers attend the inspection, which allows them to see things for themselves and ask questions.

While each state provides minimum requirements that must be checked out, “how an inspector goes about inspecting the property is up to each inspector,” he says. “If you belong to an organization like ASHI [the American Society of Home Inspectors], there is greater training specialization needed, as inspectors are expected to take continuing education classes as part of their membership and state licensing.”

Here are the top six things an inspector will always look for when assessing a property.

1. Basic safety features

Whether a home is safe to live in is a primary concern for any home inspector, which is why many of the things on the home inspector’s standard checklist are safety items. Things they’re on the lookout for include:

    • Smoke detectors: Does the home have them? Are they installed correctly and in the right places (in or near sleeping areas, not too close to the stove)?
    • Ground fault interrupters: These are the special plugs that protect you from shock in areas where water and electricity are in proximity, such as bathrooms and kitchens.
    • Safety glass: Are the glass features installed near stairs or water (like tubs and showers), made of tempered safety glass?
    • Indoor and outdoor stairs: Are the steps a uniform, safe height and angle? Are they built to code? Do they have handrails and guardrails correctly installed and in the right places?

2. The foundation and exterior ‘envelope’

No matter how old the home is, your inspector will look at the basic “envelope” that shields the structure from weather and water. The inspector will walk the property to check for cracks in the foundation and look at rain gutters and flashings, drainage, and window seals.

He or she will also inspect how the walls and roof intersect. For example, an inspector doesn’t want to see lots of caulk there, because that usually means it’s not properly waterproofed. When done right, waterproofing is part of the home design — not something added after the fact. If signs of prior water penetration are found, he or she will also check whether the issue was fixed properly.

3. The roof

An inspector can tell if a roof was done properly by a professional, or sloppily by an amateur. They’ll want to make sure your roof is well constructed, isn’t showing signs of age or deterioration, and will protect you from the elements. They’ll also check to see that any openings — like a chimney or skylights — are properly sealed, flashed, and free of moss growth and debris.

The older the house, the more likely it is that the roof has already been resurfaced at least once, and roofs do need replacement from time to time, which can be an expensive process. As part of their inspection report, an inspector will typically provide an estimate of how many good years the roof has left before you should consider replacing it.

4. Major systems: electrical, plumbing, etc.

The inspector will check out all of your home’s most important interior systems, from electrical and plumbing to heating and air conditioning.

    • Heating and air: How well does the heating and cooling work? Do they serve every area in the home evenly? Is there good airflow in every room? If there’s an air return, is it properly located and sized to serve the house efficiently?
    • Plumbing: The inspector will check to see that the plumbing is in good shape, provides enough water to the house, and drains as it should — no one wants leaky pipes letting water into their home and causing flooding or mold problems. He or she will also ensure there is sufficient water flow and pressure. If the house uses well water, ask to have the pump and water quality checked.
    • Electrical: Electricity is essential for modern life, but it can also be dangerous. An inspector will make sure that your electrical system is safe, provides enough power for the house, and is installed and grounded correctly. They’ll also check to make sure there are enough outlets and look at the electrical panel — an old or obsolete panel may become a fire hazard. 

5. Ventilation

Dangerous fumes can build up in a house if appliances that run on oil or natural gas, like water heaters for example, aren’t installed and configured the right way. Proper ventilation is crucial. Many of these appliances have safety features built-in, but an inspector will make sure the safety equipment is correctly enabled.

Besides checking the water heater’s ventilation, the inspector will also check its maximum temperature to make sure your tap water can’t get hot enough to burn anyone. Additionally, he or she will make sure that clothes dryers are properly vented to catch lint and expel hot air, which helps prevent house fires and may also test for radon.

6. Signs a specialist is needed

Some areas or conditions might need further examination, often by a specific type of pro with specialized equipment. A good inspector will know when to call in the heavy hitters, and may even have a network of specialists they can refer you to.

For example, a fireplace is one feature that always gets careful evaluation. The inspector wants to see that it vents well and doesn’t have any conditions that could become a hazard, like cracks, blockages, or excessive buildup. If they see something concerning, your inspector might recommend a fireplace inspector, who will use a specialized camera to scope out the interior of the chimney and flue.

Sewers are another area that calls for extra care, especially in an older house. A septic problem hidden beneath your yard can be one of the most expensive repairs a homeowner must make. If you’re buying a home that has sewer service, consider calling in a specialist to have the whole system (from the main house to the street) video scoped or a video inspection that goes through pipes, holes, and other areas.

Source: bankrate.com ~ By: Dori Zinn & Grace Kim ~ Image: Canva Pro

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How to buy a house in 2024

Buying home in 2024

Last year may go down in real estate history as the year of correction. After a pandemic-fueled, seller-benefitting boom — with bidding wars, inventory shortages, and spiraling prices all over the country — the housing market began to cool down in 2022. The impact of inflation and fast-rising interest rates dampened buyers’ interest, causing sales to slow and price appreciation to decelerate.

All this made 2023 something of a transitional year. And now, in 2024, inflation is much lower but home prices and mortgage rates are both still high. Sellers still have an edge in many areas, thanks to a continued scarcity of houses, and no one expects a dramatic housing market crash. Still, many analysts see a shift coming toward a more balanced market, which would benefit buyers.

Whatever the economic state of the real estate market, buying a house can be an exciting and emotional process. Before starting your search, be sure you understand the ins and outs of homebuying, so you can make the best decisions for your family — and your wallet. Here’s what to know when buying a house, one step at a time.

Buying a house: A step-by-step guide

1. Determine why you want to buy a house

Purchasing a home is a major decision that shouldn’t be taken lightly. If you’re not clear on exactly what you want out of homeownership, you could end up regretting your choice.

Get started: Define your personal and financial goals. “Buyers should think about when they intend on moving and what they want in a home — amenities, ideal location, and how long it could take them to save for a down payment,” says Edwence Georges, a real estate agent with RE/MAX in Westfield, New Jersey. “These are all important to help define the goals they would like to meet.”

    • Make a list of what’s important to you in a home. Is location the top priority? Any must-have amenities?
    • Analyze whether it makes sense for you financially. Would renting for another year or two improve your financial standing?
    • Be sure you’re prepared for the ongoing expenses of maintaining a home.

2. Check your credit score

Your credit score will help you determine your financing options; lenders use it (among other factors) to set the terms and rates of your loan. The higher your score, the lower the interest rate you will be eligible for — lower scores equate to more expensive mortgages.

Get started: You can get your credit report and score from each of the three major credit reporting agencies, Equifax, Experian, and TransUnion, for free once a year. Your bank or credit card company might offer free access to your score or credit report, too. If you discover any discrepancies, contact each agency and report the error.

    • Consider how different credit score ranges impact your interest rate, monthly payments, and total interest.
    • Pull your credit reports from each of the credit bureaus for free every 12 months at AnnualCreditReport.com.
    • Learn other ways to get your free credit report and score.

3. Save for a down payment

To avoid having to pay private mortgage insurance or PMI, you’ll need to put down at least 20 percent of the home’s purchase price for a down payment. Some lenders offer mortgages without PMI with lower down payments but expect to pay a higher interest rate. Be sure to do your research: Many types of loans require a much lower minimum down payment, and there are many government programs to help cover down payment costs for qualified buyers. Shop around carefully based on how much you’re able to pay upfront.

Get started: Research the requirements for the loan you want so you know exactly how much you’ll need to save for a down payment. If a friend, relative, or employer has offered to provide a down payment gift, initiate a conversation early on to learn how much they plan to contribute and if there’s any shortfall you’ll need to cover — and secure a gift letter from them well in advance.

    • Consider options backed by the federal government. If you qualify for an FHA, VA or USDA loan, your down payment minimum will be considerably lower than 20 percent.
    • Conventional loans offered by Fannie Mae and Freddie Mac, meanwhile, require just 3 percent down.
    • Look into local and state down payment assistance programs to see if you’re eligible for a cost-saving loan or grant.

4. Create a housing budget

The purchase price and down payment aren’t the whole picture. Setting a realistic budget for your new home will help inform how much you can afford and what your all-in costs will be.

Get started: Carefully consider other expenses to determine what you can afford long-term. “Buyers tend to forget to factor in other costs, like homeowners association fees and maintenance,” says Paige Kruger, Realtor and founder of Signal Real Estate in Jacksonville Beach, Florida. “Just because you can afford a mortgage and a down payment doesn’t mean you can afford those long-term costs after you move.”

    • Figure out how much you can set aside for a down payment, plus a buffer fund for ongoing or unexpected maintenance costs.
    • Determine the maximum loan you qualify for. Getting pre-approved can help (see Step 5).
    • Analyze your monthly budget to make sure you can handle mortgage payments along with your other day-to-day bills.

5. Shop for a mortgage

Getting pre-approved for a mortgage gives you a firmer handle on how much you can afford, and it’s helpful when you make an offer on a house because it shows sellers you’re financially qualified. Once you’re ready to apply for official approval, you’re not obligated to stick with the same lender that issued your preapproval — compare the terms and rates offered by several companies.

Get started: Shop around with at least three lenders or a mortgage broker to increase your chances of getting a low-interest rate. Sign up for a Bankrate account to determine the right time to strike on your mortgage with our daily rate trends.

    • Work with an experienced mortgage lender who can walk you through all the options and overall costs.
    • If you’re a first-time homebuyer, inquire about what programs or incentives might be available to you.

6. Hire a real estate agent

An experienced real estate agent can save you time and money by helping you find the right home and negotiating with the seller on your behalf. Agents are licensed professionals who know their markets well and can guide you through your homebuying journey.

Get started: Contact several local real estate agents and talk with them about your needs before choosing one. “Someone with knowledge of an area can tell if your budget is realistic or not, depending on the features you desire in a home,” Kruger says. “They can also point you to adjacent areas in your desired neighborhood or other types of considerations to help you find a house.”

    • Before hiring an agent, ask about their track record and knowledge of your desired neighborhood.
    • Inquire about their workload as well. You don’t want someone who is over-scheduled.
    • Bankrate can help match you with a qualified agent in your area.

7. Go house-hunting

Viewing listing photos online is helpful, but isn’t a substitute for visiting homes in person and getting to know the area and its amenities. In some cases, the right neighborhood might be even more important than the home itself.

Get started: Be specific with your agent about exactly what kinds of homes you want to see, so they can more effectively find options that meet your criteria. Keep an open mind: You may not be able to check off everything on your wish list, so prioritize must-haves over things that are nice to have but not crucial.

    • Explore neighborhoods you like to see what’s for sale, and attend open houses for homes that pique your interest.
    • Take notes on each property you visit — after a few, they can start to blend together in your mind.
    • Keep your schedule open so you can pounce when a great home is listed, especially in a competitive market.

8. Make an offer

Understanding how to make an attractive offer on a home can help increase the chance of it being accepted, putting you one step closer to getting those coveted keys. Confer with your agent and let their expertise lead the way.

Get started: Once you find “the one,” your real estate agent will help you prepare a complete offer package, including your offer price, your preapproval letter, proof of funds for a down payment (this helps in competitive markets), and terms or contingencies.

    • Think carefully about what contingency clauses to include in your contract. Common real estate contingencies can hinge on financing, appraisal, home inspection, and more.
    • It’s not unusual for sellers to make a counteroffer. You can respond if you wish to keep negotiating, or reject it and move on.
    • Once an offer is accepted, you’ll sign a purchase agreement and pay an earnest money deposit, typically 1 to 2 percent of the purchase price. The funds will be held in escrow until closing.

9. Get a home inspection

A home inspection provides an overall picture of the property’s condition and any mechanical or structural issues it might have. This will help you determine how to proceed with the closing process: If major problems are found, you might want to ask the seller for repairs — or, if there’s an inspection contingency in the contract, you might even decide to back out of the deal.

Get started: Your agent can probably recommend a home inspector, but do your homework before choosing one. Depending on your contract and what state you’re in, you’ll generally need to complete the inspection within 10 to 14 days of signing a purchase agreement.

    • Check the inspector’s experience by reading online reviews, asking for client references, and looking at their credentials.
    • To understand what is and isn’t covered, read Bankrate’s home inspection checklist.
    • Fees can vary, but according to HomeAdvisor, you’ll likely pay somewhere between $281 and $403. The average is $342.

10. Negotiate repairs and credits

Your home inspection may reveal a few issues, especially if it’s an older home. Major problems might need to be dealt with before your mortgage lender will finalize your loan, and it’s common to negotiate for the seller to either pay for the repair or offer the buyer a credit to cover the cost.

Get started: Enlist your agent’s help with this — the need for repairs is not unusual, but negotiation can be delicate work and is best left to the pros. They will work with the seller’s agent to come to an agreement about repairs or credits.

    • Hazardous problems like structural damage or improper electrical wiring could keep your lender from approving your loan, so take the solutions very seriously.
    • Some sellers won’t agree to extensive repairs. That’s why a home inspection contingency is important — it gives you a way out of the deal if you need it.

11. Secure your financing

A preapproval is not the same thing as official approval. Getting final loan approval means you need to keep your finances and credit in line during the underwriting phase. Don’t open new credit lines or make any major purchases until the paperwork is signed, and avoid changing jobs before closing too, if possible.

Get started: Respond promptly to requests or questions from the lender, and double-check your loan estimate to ensure all the details are correct. You may need to submit additional paperwork as your lender completes the process, such as bank statements, tax returns or additional proof of income, so keep your paperwork organized.

    • Being preapproved doesn’t mean you’re in the clear — that’s not the case until a lender has given your loan the final stamp of approval.
    • Keep your finances and credit in good shape from preapproval until closing day.
    • Avoid running up credit cards, taking out new loans or closing credit accounts too. These things can hurt your credit score or impact your debt-to-income ratio, which can imperil your final loan approval.

12. Do a final walk-through

A final walk-through is your opportunity to view the property one last time before it becomes yours. This is your last chance to address any outstanding issues before the house becomes your responsibility.

Get started: Your agent will schedule the walk-through for shortly before closing. Bring your home inspection checklist and other documents, like repair invoices and receipts, to ensure everything was done as agreed and that the home is move-in ready.

    • Ask your agent to attend with you — they can act as a witness and help answer any questions.
    • If any problems remain, have your agent communicate immediately with the seller and your lender. Your closing date might have to be delayed to ensure those issues are remedied first.

13. Close on your house

Once all contingencies have been met, you’re happy with the final walk-through and your lender has declared your loan “clear to close,” it’s finally time to make it official and close on your new home. After all of the paperwork has been signed, the home is officially yours and you’ll get the keys. Congratulations!

Get started: Three business days before your closing date, the lender will provide you with a closing disclosure that outlines your loan details, such as the monthly payment, loan type and term, interest rate, loan fees and how much money you must bring to closing. You will attend the closing along with your real estate agent, possibly the seller and their agent, and the closing agent, who may be a representative from the escrow or title company or a real estate attorney. This is also when you’ll wire your closing costs and down payment, depending on the escrow company’s procedures.

    • When you get your closing disclosure, compare it to your loan estimate to ensure the terms are the same. Ask any questions and correct any errors before you sign the paperwork.
    • On closing day, review all the documents you sign carefully, and ask for clarification on anything you don’t understand.
    • Make sure you’re given all house keys, entry codes, and garage door openers before leaving the closing.

Other things to consider

Is it the right time to buy?

Traditionally, spring is the start of the homebuying season, with many listings hitting the market and activity peaking over late spring/early summer. However, your own financial readiness is more important than the time of year.

Mortgage rates recently hit highs not seen in more than 20 years. Meanwhile, strong demand for homes has pushed prices higher and frustrated many potential homebuyers. This combination of high rates and high prices has plenty of people wondering whether they should try to buy a home now, or wait for things to settle down.

The answer likely depends on your own personal circumstances more than the condition of the housing market. If you’re financially stable, you have enough in savings to cover the down payment and other expenses, your employment and income are secure, and you’re ready to stay in one place for a while, then now is a perfectly fine time to buy a house. You can always refinance if rates drop significantly. On the other hand, if your savings are tight or your credit score is less than stellar, it might make more sense to take time to build those before buying.

One thing to keep in mind: Be sure to exercise caution anytime there’s a spike in home prices. “Be careful about buying near the top of the market, especially if you want to be in the home for only a few years,” says Ken H. Johnson, a real estate economist at Florida Atlantic University and co-author of the Beracha, Hardin & Johnson Buy vs. Rent Index. If you’re looking to buy under these conditions, says Johnson, “bargain aggressively and be willing to walk away.”

What’s your local market like?

The area you’re house-hunting in has a major impact on what to brace for as a homebuyer. Each market has its own quirks to consider: For example, the taxes, cost of living, job market and housing situation in California will yield different buying conditions than in Texas or Ohio. And even within the same city, real estate is very localized — you might be surprised by how drastically market conditions can vary from one neighborhood to the next. This is why partnering with a knowledgeable local agent who understands the intricacies of their market is so important.

How prepared are you for extra costs?

The down payment is often considered the biggest homebuying expense, since it’s a large amount that the buyer has to actually pay upfront. But homeownership involves plenty of additional costs that you should be ready for. Before you even close on the purchase, you’ll need to make sure you have enough money set aside to cover closing costs. These fees will vary by state and by individual transaction, but they will almost certainly range into the thousands of dollars.

When budgeting for your monthly housing costs, factor in not only the principal and interest amounts of your mortgage payment, but also property taxes, home insurance premiums, and homeowners association fees (if applicable), plus private mortgage insurance if you’re putting down less than 20 percent. And don’t forget to set aside money for ongoing maintenance and unexpected repairs, too.

Source: bankrate.com ~ By: Jeff Ostrowski ~ Image: Canva Pro

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