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The #1 Thing You Can Do Now to Position Yourself to Buy a Home This Year

The #1 Thing You Can Do Now to Position Yourself to Buy a Home This Year

The last few weeks and months have caused a major health crisis throughout the world, leading to a pause in the U.S. economy as businesses and consumers work to slow the spread of the coronavirus. The rapid spread of the virus has been compared to prior pandemics and outbreaks not seen in many years. It also has consumers remembering the economic slowdown of 2008 that was caused by a housing crash. This economic slowdown, however, is very different from 2008.

One thing the experts are saying is that while we’ll see a swift decline in economic activity in the second quarter, we’ll begin a sharp rebound in the second half of this year. According to John Burns Consulting:

“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices), and some very cutting-edge search engine analysis by our Information Management team showed the current slowdown is playing out similarly thus far.” 

Given this situation, if you’re thinking about buying a home this year, the best thing you can do right now is use this time to get pre-approved for a mortgage, which you can do from the comfort of your home. Pre-approval will help you better understand how much you can afford so that you can confidently do the following two things when you’re ready to buy:

1. Gain a Competitive Advantage

Today’s low inventory, like we’ve seen recently and will continue to see, means homebuyers need every advantage they can get to make a strong offer and close the deal. Being pre-approved shows the sellers you’re serious about buying a home, which is always a plus in your corner.

2. Accelerate the Homebuying Process

Pre-approval can also speed-up the homebuying process so you can move faster when you’re ready to make an offer. Being ready to put your best foot forward when the time comes may be the leg-up you need to cross the finish line first and land the home of your dreams.

Bottom Line

Pre-approval is the best thing you can do right now to be in a stronger position to buy a home when you’re ready. Let’s connect today to get the process started.

key chain home form on the coin in the middle of the puzzle

The Economic Impact of Buying a Home

The Economic Impact of Buying a Home

We’re in a changing real estate market, and life, in general, is changing too – from how we grocery shop and meal prep to the ways we can interact with our friends and neighbors. Even practices for engaging with agents, lenders, and all of the players involved in a real estate transaction are changing to a virtual format. What isn’t changing, however, is one key thing that can drive the local economy: buying a home.

We’re all being impacted in different ways by the effects of the coronavirus. If you’re in a position to buy a home today, know that you’re a major economic force in your neighborhood. And while we all wait patiently for the current pandemic to pass, there are a lot of things you can do in the meantime to keep your home search on track.

Every year the National Association of Realtors (NAR) shares a report that notes the full economic impact of home sales. This report summarizes:

The total economic impact of real estate related industries on the state economy, as well as the expenditures that result from a single home sale, including aspects like home construction costs, real estate brokerage, mortgage lending and title insurance.

Here’s the breakdown of how the average home sale boosts the economy:The Economic Impact of Buying a Home | MyKCMWhen you buy a home, you’re making an impact. You’re fulfilling your need for shelter and a place to live, and you’re also generating jobs and income for the appraiser, the loan officer, the title company, the real estate agent, and many more contributors to the process. For every person or business that you work with throughout the transaction, there’s also likely a team behind the scenes making it all happen, so the effort multiplies substantially. As noted above in the circle on the right, the impact is almost double when you purchase new construction, given the extra labor it requires to build the home.

The report also breaks down the average economic impact by state:

The Economic Impact of Buying a Home | MyKCMAs a buyer, you have an essential need for a home – and you can make an essential impact with homeownership, too. That need for shelter, comfort, and a safe place to live will always be alive and well. And whenever you’re able to act on that need, whether now or later, you’ll truly be creating gains for you, your family, local business professionals, and the overall economy.

Bottom Line

Whenever you purchase a home, you’re an economic driver. Even if you’re not ready or able to make a move now, there are things you can do to keep your own process moving forward so you’re set when the time is right for you. Let’s connect to keep your home search – and your local contributions – on track.

Happy man and woman with laptop fist bumping in modern office

Two Big Myths in the Homebuying Process

Two Big Myths in the Homebuying Process

The 2020 Millennial Home Buyer Report shows how this generation is not really any different from previous ones when it comes to homeownership goals:

“The majority of millennials not only want to own a home, but 84% of millennials in 2019 considered it a major part of the American Dream.”

Unfortunately, the myths surrounding the barriers to homeownership – especially those related to down payments and FICO® scores – might be keeping many buyers out of the arena. The piece also reveals:

“Millennials have to navigate a lot of obstacles to be able to own a home. According to our 2020 survey, saving for a down payment is the biggest barrier for 50% of millennials.”

Millennial or not, unpacking two of the biggest myths that may be standing in the way of homeownership among all generations is a great place to start the debunking process.

Myth #1: “I Need a 20% Down Payment”

Many buyers often overestimate what they need to qualify for a home loan. According to the same article:

“A down payment of 20% for a home of that price [$210,000] would be about $42,000; only about 30% of the millennials in our survey have enough in savings to cover that, not to mention the additional closing costs.”

While many potential buyers still think they need to put at least 20% down for the home of their dreams, they often don’t realize how many assistance programs are available with as little as 3% down. With a bit of research, many renters may be able to enter the housing market sooner than they ever imagined.

Myth #2: “I Need a 780 FICO® Score or Higher”

In addition to down payments, buyers are also often confused about the FICO® score it takes to qualify for a mortgage, believing they need a credit score of 780 or higher.

Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans, shows the truth is, over 50% of approved loans were granted with a FICO® score below 750 (see graph below):Two Big Myths in the Homebuying Process | MyKCMEven today, many of the myths of the homebuying process are unfortunately keeping plenty of motivated buyers on the sidelines. In reality, it really doesn’t have to be that way.

Bottom Line

If you’re thinking of buying a home, you may have more options than you think. Let’s connect to answer your questions and help you determine your next steps.

Confident senior man and young man sitting in the city talking

Confidence Is the Key to Success for Young Homebuyers

Tips for Young Homebuyers

Buying your first home can seem overwhelming. Thankfully, there’s a lot of great information out there to help you feel more confident as you learn about the process. For those in younger generations who aspire to buy, here are three things to consider sooner rather than later in your journey:

1. Understand What it Takes to Purchase a Home

Overall, Millennials make up the largest group of homebuyers in today’s real estate market, and Gen Z is not too far behind. A recent study shared by Freddie Mac shows, however, that Generation Z isn’t as confident in the homebuying process as Millennials. The best thing potential young buyers can do is understand what it takes to buy a home. Learn as much as you can about the mortgage processdown payment options, and the overall steps to take along the way. 

2. Realize Your Opportunity to Build Wealth 

Homeownership allows you the chance to put a small portion of the home’s value down when you buy, and then watch your appreciation grow on the full value of the home – not just on the down payment. It’s one of the best investments you can make, and a form of forced savings working in your favor over time. The added bonus? You get to live there, too.

3. Find Someone You Trust to Help You Through the Process 

Having someone you trust to guide you through this process is invaluable. Finding a local real estate expert to help you navigate through the transaction and feel more confident as you make important decisions could be the best choice you make.

For Millennials and Gen Z’ers thinking about buying, today’s historically low interest rates combined with the outlook for future home appreciation is a big win. This means whatever you buy today, you’ll be bragging about 10 years from now. You can feel confident about that!

Bottom Line

If you’re ready, buying your first home sooner rather than later is one of the best decisions you can make. But there are many things to consider before taking that step, so let’s work together to help you confidently navigate the full journey.

Photo of a young mixed-race family admiring a home - possibly their first home, or the home they hope to own.

The Overlooked Financial Advantages of Homeownership

There are many clear financial advantages to owning a home: increasing equity, building net worth, growing appreciation, and more. If you’re a renter, it’s never too early to make a plan for how homeownership can propel you toward a stronger future. Here’s a dive into three often-overlooked financial benefits of homeownership and how preparing for them now can steer you in the direction of greater stability, savings, and predictability.

1. You Won’t Always Have a Monthly Housing Payment

According to a recent article by the National Association of Realtors (NAR):

“If you’ve been a lifelong renter, this may sound like a foreign concept, but believe it or not, one day you won’t have a monthly housing payment. Unlike renting, you will eventually pay off your mortgage and your monthly payments will be funding other (possibly more fun) things.”

As a homeowner, someday you can eliminate the monthly payment you make on your house. That’s a huge win and a big factor in how homeownership can drive stability and savings in your life. As soon as you buy a home, your monthly housing costs will begin to work for you as forced savings, coming in the form of equity. As you build equity and grow your net worth, you can continue to reinvest those savings into your future, maybe even by buying that next dream home. The possibilities are truly endless.

2. Homeownership Is a Tax Break

One thing people who have never owned a home don’t always think about are the tax advantages of homeownership. The same piece states:

“Both the interest and property tax portion of your mortgage is a tax deduction. As long as the balance of your mortgage is less than the total price of your home, the interest is 100% deductible on your tax return.”

Whether you’re living in your first home or your fifth, it’s a huge financial advantage to have some tax relief tied to the interest you pay each year. It’s one thing you definitely don’t get when you’re renting. Be sure to work with a tax professional to get the best possible benefits on your annual return.

3. Monthly Housing Costs Are Predictable

A third item noted in the article is how monthly costs become more predictable with homeownership:

As a homeowner, your monthly costs are most likely based on a fixed-rate mortgage, which allows you to budget your finances over a long period of time, unlike the unpredictability of renting.”

With a mortgage, you can keep your monthly housing costs steady and predictable. Rental prices have been skyrocketing since 2012, and with today’s low mortgage rates, it’s a great time to get more for your money when purchasing a home. If you want to lock-in your monthly payment at a low rate and have a solid understanding of what you’re going to spend in your mortgage payment each month, buying a home may be your best bet.

Bottom Line

If you’re ready to start feeling the benefits of stability, savings, and predictability that come with owning a home, let’s get together to determine if buying a home sooner rather than later is right for you.

Lucy on Orange Chair revised

Reasons to Fall in Love with Homeownership

Are you ready to fall in love with homeownership?

There are many benefits to love about homeownership, and they’re not all financial.

Being a part of a neighborhood, driving academic achievement, and improving mental health are just a few of these advantages.

Let’s get together today to determine if you’re ready to embrace the rewards of owning your own home.

Educational Achievement

Homeownership has a positive impact on academic achievement, including reading and math performance in children 3-12 years old.

Civic Participation

Owning a home means being part of the neighborhood. Homeowners have a stronger connection to their neighborhood and are more committed to volunteering.

Health Benefits

Adjusting for a range of demographic, socioeconomic, and housing-related characteristics, homeowners have a substantial health advantage over renters.

Public Assistance

47% of homeowners use their home equity credit lines to help pay other debts, diminishing their need for public assistance.

Property Maintenance and Improvement

A well-maintained home not only generates benefits throughout consumption and safety, but a high-quality structure also raises mental health.

Pride in Ownership

This place is uniquely yours. You can customize your home according to your likes and personality.

 

Single mother having fun with young daughter on the backyard.

Great News for Renters Who Want to Buy a Home

Rents in the United States have been skyrocketing since 2012. This has caused many renters to face a tremendous burden when juggling their housing expenses and the desire to save for a down payment at the same time. The recent stabilization of rental prices provides a great opportunity for renters to save more of their current income to put toward the purchase of a home.

Just last week the Joint Center of Housing Studies of Harvard University released the America’s Rental Housing 2020 Report. The results explain the financial challenges renters are experiencing today,

“Despite slowing demand and the continued strength of new construction, rental markets in the U.S. remain extremely tight. Vacancy rates are at decades-long lows, pushing up rents far faster than incomes. Both the number and share of cost-burdened renters are again on the rise, especially among middle-income households.”

According to the most recent Zillow Rent Index, which measures the estimated market-rate rent for all homes and apartments, the typical U.S. rent now stands at $1,600 per month. Here is a graph of how the index’s median rent values have climbed over the last eight years:Great News for Renters Who Want to Buy a Home | MyKCM

Is Good News Coming?

There seems, however, to be some good news on the horizon. Four of the major rent indices are all reporting that rents are finally beginning to stabilize in all rental categories:

1. The Zillow Rent Index, linked above, only rose 2.6% over the last year.

2. RENTCafé’s research team also analyzes rent data across the 260 largest cities in the United States. The data on average rents comes directly from competitively rented, large-scale, multi-family properties (50+ units in size). Their 2019 Year-End Rent Report shows only a 3% increase in rents from last year, the slowest annual rise over the past 17 months.

3. The CoreLogic Single Family Rent Index reports on single-family only rental listing data in the Multiple Listing Service. Their latest index shows how overall year-over-year rent price increases have slowed since February 2016, when they peaked at 4.2%. They have stabilized around 3% since early 2019.

4. The Apartment List National Rent Report uses median rent statistics for recent movers taken from the Census Bureau American Community Survey. The 2020 report reveals that the year-over-year growth rate of 1.6% matches the rate at this time last year; it is just ahead of the 1.5% rate from January 2016. They also explain how “the past five years also saw stretches of notably faster rent growth. Year-over-year rent growth stood at 2.6% in January 2018, and in January 2016 it was 3.3%, more than double the current rate.”

It seems tenants are getting a breather from the rapid rent increases that have plagued them for almost a decade.

Bottom Line

Rental expenses are beginning to moderate, and at the same time, average wages are increasing. That power combination may allow renters who dream of buying a home of their own an opportunity to save more money to put toward a down payment. That’s sensational news!

5 Things Buyers Should Know About Home Inspections

5 Things Buyers Should Know About Home Inspections

Home buyers tend to have a lot of questions about home inspections. Are they required? How are they different from appraisals? When does it take place? Here are answers to these and other common questions.

1. Home inspections aren’t required, but they’re worth it.

There is no law that says you have to have an inspection when buying a house. It’s an option that is generally left up to the home buyer. But while you’re not required to have a house inspected before purchasing, it’s generally a wise idea to do so. Unless you are a licensed contractor or builder, you probably don’t have the experience necessary to evaluate the structural aspects of the home. Home inspectors specialize in that very thing.

2. It’s different from a home appraisal.

Home appraisals and inspections are similar procedures, but they have two very different goals in mind.

  • A home inspector will alert you to any potential repair issues, or other problems with the structure and installed systems.

  • A home appraiser, on the other hand, is primarily focused on determining the market value of the house.

If you are planning to use a mortgage loan to finance your purchase, there’s a good chance the mortgage lender will require you to have a home appraisal. They do this to determine how much the house is worth. But the inspection is usually optional, and it focuses on the condition of the home. They are two different things.

3. It usually happens soon after the contract is signed.

As far as the timeline goes, a home inspection typically takes place shortly after the buyer and seller have agreed on the purchase price and signed a contract. At that point, the buyer will often hire an inspector to perform a complete home inspection.

The seller does not need to be present for the inspection. In most cases, the seller will actually leave the premises so the inspector can come in and do what he/she needs to do. Home buyers are almost always present during this process. The seller’s listing agent might grant the inspector access to the home. Or they might put a lockbox on the door. But as far as the timing goes, it typically takes place soon after the purchase agreement has been signed.

4. It helps you uncover any serious issues with the house.

The inspector will closely examine almost every aspect of the house. That includes the foundation, the roof, the electrical and plumbing systems, HVAC and more. He will provide you with a detailed report of any repair issues or other problems that he finds. This kind of report is invaluable to someone buying a home, especially when you consider how much money is on the line.

5. It’s a small price to pay for peace of mind.

Home inspections typically range from $250 – $400, depending on the size of the house and other factors. When you consider the amount of money you are going to put into the home – and the amount you might be borrowing from a lender – it’s a relatively small price to pay for peace of mind.

5 Tips for Making an Offer in a Hot Real Estate Market

5 Tips for Making an Offer in a Hot Real Estate Market

Steady demand. Limited supply. That’s what we are seeing in real estate markets across the country right now. Inventory is particularly tight within the lower price ranges. “The starter house is nearly missing in some markets,” according to Jessica Lautz, managing director of survey research and communication for the National Association of Realtors.

Of course, conditions can vary from one city to the next. But the overall trend in housing markets across the country is that supply is still falling short of demand.

Given these conditions, it’s important for home buyers to make a strong, smart offer when the right house comes along. Here are five tips for doing exactly that.

1. Understand the supply and demand situation in your area

According to housing experts, a so-called “balanced” real estate market has five to six months of supply. This means, in theory, that it would take five or six months to sell off all homes currently listed for sale if no new properties came onto the market.

Many real estate markets across the country have less than a three-month supply right now. And some cities have less than a two-month supply.

The first step to making a strong offer is to understand the supply-and-demand situation in your area. We are still seeing sellers’ market conditions in many cities, as of spring 2018. And this could persist for some time.

2. Study recent sales prices in your area

This is something a real estate agent can help you with, but you can do some of it for yourself. The idea here is to get a good understanding of recent sales prices in the area where you want to buy.

This will help you in a couple of ways. It will save you time during the house-hunting process, by eliminating the need for repetitive research and pricing “sanity checks.” It will also help you make a strong, realistic offer backed by recent sales trends. And speaking of offers…

3. Make a strong and timely offer, backed by comparable sales

In a slow housing market, where sellers are ready to jump on the first offer that comes along, home buyers have the luxury of taking their time. A buyer might start off with an initial offer below the asking price, just to open negotiations. The seller would probably come back with a counteroffer or accept the first offer.

But it doesn’t work that way in a more competitive real estate market with limited inventory. In a tight market, buyers are better off making their first offer as competitive as possible. Otherwise, the house could go to a competing buyer.

4. Consider writing a love letter to the seller

A house love letter, that is! Recent studies have shown that buyers in competitive real estate markets can improve their chance for success by writing a heartfelt letter to the seller. Sure, real estate is a business transaction. But there’s a personal side to it as well. Writing a personal letter to tell the sellers what you love about their home might just tip the scales in your favor.

5. Get an agent on your side

It’s always a good idea to have help from a local real estate agent. It’s even more important in a tight market with limited inventory. An agent can help you move quickly, putting together a strong offer that’s supported by recent sales data. At NextHome Realty Select we are here to help you find your #NextHome. Call us today to learn more about how we can help you and your family.

Income Needed to Qualify for a Mortgage Loan

Income Needed to Qualify for a Mortgage Loan

When you apply for a home loan, the mortgage lender will conduct a thorough review of your income situation. Income is one of the most important factors to a lender, along with your credit score and debt level. This article answers a common, income-related question that home buyers often ask: How much income is needed to qualify for a mortgage loan?

The first thing to know is that mortgage lending standards and requirements can vary from one lender to the next. For example, if I approach a handful of lenders about a certain home loan, and my income level is on the “border” of acceptability, one company might approve me for the loan while others turn me down. That’s because they have their own business models and assessment procedures.

In addition, your household income level is only one piece of the mortgage qualification process. Lenders will review other things as well, including your credit score and your total amount of debt. Remember, your debt takes away a big part of your income — so the two things are usually reviewed together.

How Much Income to Qualify?

These days, most lenders set the bar somewhere around 43% to 45% for the total debt-to-income ratio or DTI. This means that if your recurring monthly debts use up more than 45% of your monthly income, you might have trouble qualifying for a loan. On the other hand, a borrower who only uses about 35% of her income to cover the monthly debts should be in good shape, as far as lenders are concerned.

These numbers are not set in stone. Some lenders may allow total DTI ratios above 45%, especially when there are certain “compensating factors.”

According to the Consumer Financial Protection Bureau (CFPB):

“Larger lenders may still make a mortgage loan if your debt-to-income ratio is more than 43 percent … But they will have to make a reasonable, good-faith effort, following the CFPB’s rules, to determine that you have the ability to repay the loan.”

So, where do you stand? What’s your total debt-to-income ratio? You can find plenty of calculators online to help you calculate your DTI level. That’s a good place to continue your research.

Applying for a Mortgage Quote

When you’ve done the necessary research, and feel that you’re ready to take on a mortgage loan, the next logical step is to apply for quotes from lenders. The good news is that this process is easier than ever, thanks to the internet. You can apply online and get information sent to you by email.

Granted, you’ll have to fill out a more complete application at some point, along with plenty of supporting documents (tax records, bank statements, etc.). But the initial online application is a good way to get the ball rolling.

Don’t Overstretch Your Income

The last point I want to make is that a mortgage lender cannot tell you what you can afford. They can only tell you what they are willing to lend you, in terms of a loan. You must determine your own affordability limits before you even start talking to lenders.

Doing some basic budget math up front could help you avoid financial issues down the road. So take a good, hard look at your current debt and income situation — and decide what you’re comfortable paying each month in the form of a mortgage payment.