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.

Mortgage Rates Rise to Their Highest Level in Over Four Years

Are you thinking about buying a home in the near future? Do you need a mortgage loan to finance your purchase? Here’s a trend you should know about. This week, the average rate for a 30-year fixed-rate mortgage loan rose to its highest level since 2013. This is based on the weekly industry survey conducted by Freddie Mac.

Mortgage Rates Hit 4-Year High in April 2018

On April 26, 2018, Freddie Mac published the latest results of its Primary Mortgage Market Survey (PMMS). This survey has been running for decades, and it gives us good insight into various trends. The company describes it as “the foremost reliable, representative source of regional and national mortgage rate trends.”

Here are the results of the survey for the week of April 26, 2018:

•    30-year fixed mortgage loans had an average rate of 4.58%.
•    15-year fixed mortgage loans had an average rate of 4.02%.
•    5/1 adjustable (ARM) loans had an average rate of 3.74%.

Here’s what is truly noteworthy about these latest indicators. The average rate for a 30-year fixed mortgage (the most popular loan product used by home buyers) just hit its highest level in years. To date, the average rate for a 30-year home loan hasn’t been this high since August 2013.

As Freddie Mac officials reported in their April 26 report:

“Mortgage rates increased for the third consecutive week, climbing 11 basis points to 4.58 percent. Rates are now at their highest level since the week of August 22, 2013. Higher Treasury yields, driven by rising commodity prices, more Treasury issuances and the steady stream of solid economic news, are behind the uptick in rates over the past week.”

Buying a Home Now Versus Later

Granted, the interest rates that are actually assigned to home loans can vary from one borrower to the next, and for a number of reasons. Loan type, credit scores, and discount points all play a role. The numbers above are merely averages across all of the surveyed lenders.

It’s the overall trend here that’s most important. And the trend is that average mortgage rates have shot up quite a bit over the last few months.

Home prices, meanwhile, continue to rise in most cities across the country. According to the real estate information company Zillow, the nationwide median home value rose by around 8% over the last year (as of April 2018). And while prices have slowed a down a bit in many areas, they are expected to continue moving north over the coming months — and into 2019.

These are important trends for home buyers, particularly those who need mortgage financing to complete their purchases. Rising rates can chip away at your buying power, as can rising home values. So those who are planning to buy a home in 2018 might want to consider purchasing sooner rather than later.

Homes Expected to Sell Fast in 2018, Like Last Year

Homes Expected to Sell Fast in 2018, Like Last Year

A recent report showed that homes across the U.S. sold faster than ever during 2017. And experts believe that 2018 could be an even hotter real estate market, due to a chronically low level of homes for sale. So buyers should be prepared for competition.

A Fast-Moving Real Estate Market in 2018

Here’s the big message for home buyers and house hunters in 2018: Be prepared to move quickly when you find a house you want to buy. Nationwide, homes sold at their fastest pace on record last year. And this year could match, or even outpace, that record.

According to a recent report from the real estate information company Zillow, it took a median of 81 days to sell a home in 2017. That was nine days faster than the previous year. The fastest-selling month for houses was June of 2017 when it took about 73 days for a home to sell (including the actual closing process). Since it can take between four and six weeks to close a sale, this means the typical home was on the market for around 30 days, before going under contract.

Buyers Still Dealing With Limited Inventory

So here we are in spring 2018, and housing markets across the country are still red-hot. This is largely due to the dearth of inventory seen in many areas. Home buyers in 2018 are facing limited inventory this home-shopping season, which has been the case for the last three years.

According to the latest figures, housing market inventory across the country has declined on a year-over-year basis for 37 months in a row. This leaves fewer options for home buyers while boosting competition and prices. In 2017, nearly a quarter of all homes sold across the U.S. went for more than the list price. This shows that stiff competition could be leading to bidding wars and driving prices higher.

According to Aaron Terrazas, senior economist at Zillow, 2018 will be marked by fast home sales.

“As demand has outpaced supply in the housing market over the past three years, buying a home has become an exercise in speed and agility,” Terrazas said in a recent news release. “This [year] is shaping up to be another competitive home shopping season for buyers, who may have to linger on the market until they find the right home but then sprint across the finish line once they do.”

Tips for Buying in a ‘Fast’ Market

Fortunately, there are some things you can do to make the house-hunting process more efficient and to make your offer stand out.

  1. Here are five tips for buying in a competitive market:

  2. Review recent home sales in your target area, to get a feel for pricing.

  3. Work with an experienced real estate agent who knows the local market.

  4. Get pre-approved for mortgage financing to help narrow your price range.

  5. Move quickly with a strong offer when the right house comes along.

  6. Keep the big picture in mind; don’t quibble with the seller over “nickels and dimes.”

The fastest-selling real estate markets of 2017 were mostly located in California and the Pacific Northwest, where inventory is most constrained. San Jose, California; San Francisco and Seattle topped the list. But these conditions are affecting many cities and towns across the country, to varying degrees.

7 Mortgage Tips for First-Time Home Buyers

The mortgage lending process can be somewhat intimidating, especially for first-time home buyers who’ve never been through it before. There’s so much money on the line, and so many steps along the way.

Below, we have assembled a “top-seven” list of mortgage tips for home buyers. Once you finish reading this list, you’ll have a much better understanding of how it all works.

1. Study the mortgage types.

Each type of mortgage loan comes with its own set of pros and cons. Some products are ideal for certain types of buyers but disadvantageous for others. To decide which type of loan is right for you, you’ll need to know the pluses and minuses of each type. Start by learning the pros and cons of (A) conventional versus government-backed loans, and (B) adjustable-rate versus fixed-rate loans. These are your two biggest choices.

2. Consider your staying time.

How long do you plan to stay in the home? This will often determine which type of home loan is best for you. For instance, an adjustable-rate mortgage (ARM) could lower your interest rate up front, when compared to a fixed-rate mortgage. But if you stay in the home beyond the ARM loan’s introductory period, you’ll face the uncertainty of interest rate adjustments. The 30-year fixed-rate mortgage is the most popular type of loan these days.

3. Consider all types of lenders.

Many first-time home buyers don’t realize they can find mortgage financing locally, at local banks and credit unions. It’s true. So when shopping around for a lender and a loan program, be sure to look beyond the “big banks.” Don’t limit yourself. Keep your options open. If you have an existing relationship with a bank or credit union, ask them if they offer home loans.

4. Shop for the best rate.

Mortgage lenders will offer interest rates based on your credit history and credit score. When your credit is good, lenders might offer you a lower rate. When your credit is bad, the opposite can be true. Each lender defines their comfort level differently, so interest rates may vary from one company to the next. This is why it’s so important to get offers from multiple lenders.

5. Consider paying points.

One “point” is equal to one percent of the loan amount. (On a mortgage loan for $200,000, a single point would equal $2,000.) Some home buyers pay points at closing in order to lower their interest rate over the life of the loan. It’s a tradeoff. You can pay more upfront, and out of pocket, to lower your total interests costs over time. This can be a wise strategy over the long term, but it might not work out well for a shorter stay. Ask your lender to show you pricing strategies both with and without points being paid.

6. Don’t go it alone.

Most of us have friends or family members who own homes. These are good sources of information. Somebody who has been through the process and seen mortgage loans from “all sides” can often provide great information. You should also enlist the support of your real estate agent. A real estate agent is not a mortgage advisor, but most are well-informed about the mortgage process.

7. Factor in PMI.

PMI stands for private mortgage insurance. If your down payment on a house is less than 20%, your lender might require that you pay PMI. This will increase the size of your monthly payments. If you can afford to put 20% down, you’ll avoid having to pay PMI. It’s possible to get a mortgage loan with a down payment below 20%, but you’ll probably end up paying mortgage insurance of some kind — either private or government. When you get mortgage estimates from lenders, any required mortgage insurance should be included in the quote. But ask about it anyway, just to be sure.

Let us know if you are ready to start the process to purchase your first home. We would love to help you find the lender that is just right for you.

Spring 2018 Home-Buying Season to Be Marked by Low Inventory

Home buying activity tends to pick up in the spring, as more and more buyers shake off the winter chills and prepare to enter the real estate market. This year, the spring home-buying “season” will be marked by low inventory across much of the country. And that will keep things competitive for home buyers seeking a property to purchase.

42: Number of Months Inventory Has Declined

Inventory has been the big housing headline for the last couple of years. And real estate markets nationwide continue to contract, as demand outweighs the supply of homes for sale.

According to Danielle Hale, chief economist for realtor.com, inventory within the nation’s housing market has been dropping steadily for years.

“This year [2018] there is even less inventory than last year,” she told Forbes recently. “According to our February 2018 data inventory is down 8.5% from last February.”

According to Hale, housing market inventory (the number of homes listed for sale) has declined for 42 consecutive months. That’s nearly a four-year trend!

Granted, these are national averages. Housing trends and conditions can vary widely from one city to the next. For instance, larger metro areas tend to have more demand for housing, and often less inventory, than smaller surrounding cities. And the big tech hubs — like Austin, Seattle, and Denver — are among the tightest real estate markets in the country as we enter spring 2018.

Tight inventory is affecting sales volume too. “We expect little growth in sales in 2018, given tight inventories,” said Gregory Daco, chief U.S. economist at Oxford Economics in New York.

There has been an uptick in new construction permits nationwide. But it will be a while before this has any measurable impact on housing markets across the country.

According to Aaron Terrazas, as the senior economist at Zillow:

“New construction has showed signs of perking up, but remains well below estimates of demand. More importantly, builders face rising labor, materials and land costs making it difficult to build at a price point attractive to entry-level buyers.”

What It Means for Buyers and Sellers

For home buyers, these trends highlight the importance of working with an experienced real estate agent when making a purchase. An agent can help you navigate the local real estate market and make a strong offer in a timely fashion. This is the key to success in a tight, competitive housing market. And those are the kinds of conditions we are seeing nationwide, as we enter the spring home-buying season.

Sellers can benefit from the high demand and relatively low supply we are seeing right now. Under these conditions, homes tend to sell faster and for a higher percentage of the initial list price. Multiple-offer situations are also more common when housing demand exceeds the available supply.

All in all, it should be an interesting spring for the real estate market.

The Benefits of Staging When Selling a Home

Seller’s market conditions persist in cities across the country, as inventory continues to fall short of demand. Under these kinds of conditions, sellers typically enjoy competing offers from buyers.

But that doesn’t mean sellers should skimp on the home staging. By staging your house for buyers, you can increase the chance of a quick sale and a full-price offer. And those are good things!

What Is Home Staging?

Home staging is when you take proactive steps to make your house more appealing to the majority of buyers. “Majority” is the key word here. Some people will dislike a certain property no matter what kind of staging is done. Taste is subjective, after all. But there are certain steps you can take to make your property appeal to the majority of potential buyers. And that’s precisely what home staging is all about.

The staging process can include such things as:

* Landscaping the yard, when applicable
* Painting the inside and/or outside of the house
* Replacing outdated fixtures with modern ones
* Arranging, adding, or removing furniture to maximize space
* De-cluttering the entire house
* Cleaning the house thoroughly from top to bottom

In some cases, these kinds of actions might be unnecessary or even cost-prohibitive. For example, a new or recently updated home with modern fixtures won’t require any new knobs, sink handles, or light fixtures. But an older home with outdated fixtures might need extra attention (unless the fixtures are antiques that add charm).

What’s the Point?

Now you know what home staging is, and what it involves. But what’s the point? What can you get out of it, as a home seller?

As a seller, your mission is to sell your house as quickly as possible, and for the best possible price. Staging can help you achieve these goals and in several ways. It creates aesthetic value, which helps to support your asking price. It presents your home in the best possible light, which will make buyers more inclined to make an offer.

Above all, effective home staging helps you set your house apart from others that are listed for sale in the area. This is especially important in a crowded market with many similar properties for sale.

When buyers look at a well-staged home, they tend to say things like:

  • “I got a great vibe from that house.”

  • “I didn’t want to leave.”

  • “I could see myself living there.”

  • “The owners have taken good care of that house.”

  • “It seems nicer than the other homes we’ve looked at.”

This is the kind of mindset that can lead to an offer.

Home staging allows you to create a favorable impression in the mind of potential buyers. And these kinds of impressions tend to “accumulate” as the buyer moves through the home. So if you stack enough of them in your favor, you’ll have a much better chance of landing a strong offer. And that’s your primary goal as a seller.

How to Prepare for a Competitive Real Estate Market

How to Prepare for a Competitive Real Estate Market

Home buyers who are planning to enter the real estate market can benefit from having their financing arranged ahead of time. What does that mean exactly, and why is it so important in the current real estate market? Here’s what you need to know.

Many real estate markets across the country are highly competitive right now due to a lack of supply. There are plenty of people in the market looking to buy a home, but there’s not enough inventory to go around. This supply and demand imbalance puts upward pressure on home prices and makes things more competitive for buyers.

Mike Fratantoni, chief economist for the Mortgage Bankers Association, recently cited this as one of the primary factors influencing the market right now. “The major constraint in the market right now is the lack of supply,” Fratantoni told CNBC. “The absolute number of units on the market is near an all-time record low.”

Competing in a Tight Real Estate Market

In a competitive real estate market, home buyers want to have every possible advantage going for them. Among other things, home buyers can benefit from having their financing lined up ahead of time before they even start looking at houses.

This might mean one of two things, depending on your money situation:

  • If you’re planning to pay cash for a house, the seller will probably want to see bank statements proving that you have the funds in the bank.
  • If you’re like most home buyers, and you will be using a mortgage loan to help finance your purchase, the seller will probably want to see that you’ve been pre-approved by a mortgage lender already.

Benefits of Mortgage Pre-Approval

Mortgage pre-approval is basically a kind of financial pre-screening process. This is where a bank or mortgage company reviews your current financial situation to determine (A) if you’re a good candidate for a home loan, and (B) how much you can borrow. This helps you, the buyer, in two ways:

  • Getting pre-approved for a mortgage can help you narrow down your housing search to the kinds of properties you can actually afford, based on your financing. This will make your house-hunting process more efficient.
  • Mortgage pre-approval could also make sellers more inclined to take your offer seriously since you’ve been working with a mortgage lender already.

Both of these things could give you a much-needed advantage in the marketplace. This is especially important in an active real estate market where homes are selling quickly, and where multiple offers are a common occurrence.

The current inventory situation across the country also underscores the importance of having professional help from an experienced real estate agent. An agent can help you find a property that meets your needs, evaluate the seller’s asking price, and make a strong offer in a timely fashion. This is the key to success in a competitive real estate market.

The Home Buying Process

The Home Buying Process: 7 Steps to Success

The Home Buying Process: 7 Steps to Success

Home buyers tend to have a lot of questions about the house hunting and buying process. This is particularly true for first-time buyers who have never navigated their way through it before. This article lays it all out for you, from start to finish. Here are seven steps you should take when buying a home.

1. Review your credit situation

Credit scores are an important qualifying factor for home buyers who need mortgage financing. The FICO score, in particular, is the one most commonly used by mortgage lenders. According to industry experts, home buyers generally need a credit score of 600 or higher to qualify for a loan. But that number is not set in stone, and some loan programs are more flexible than others.

You can order your credit reports from Experian, Equifax, and TransUnion, and then review them for errors. You can also order your credit scores (different from your reports) to see how you stack up against the national average. A higher score could help you qualify for a better mortgage rate.

2. Determine your monthly housing budget

A mortgage lender cannot tell you how much of a monthly payment you can comfortably afford. They can only tell you the amount you qualify for. You should determine your home-buying budget for yourself, before shopping for a loan. The idea is to get a basic budget on paper, including the most you are comfortable spending each month toward your housing costs. This will come in handy later on.

3. Get pre-approved for a mortgage loan

If you’re planning to pay cash for a home, you can obviously skip this step. But if you’re like most home buyers, and you need mortgage financing to complete your purchase, you can benefit from getting pre-approved.

Pre-approval is when a mortgage lender reviews your financial and credit history to determine your “creditworthiness.” When you get pre-approved for a specific loan amount, you’ll be able to narrow your house search to that price range.

Having a pre-approval letter also shows sellers that you are serious about (and capable of) purchasing their home. This can make a big difference in active real estate markets, where the seller may receive multiple offers from competing buyers.

4. Find a real estate agent to help you

All home buyers can benefit from having professional help from an agent. This is especially true if you are buying a home for the first time, or in a new city you’re not familiar with. An agent can help you find a home that meets your needs, evaluate the seller’s asking price, put together a strong offer, and negotiate effectively based on current market conditions.

5. Start house hunting

House hunting is the most exciting part of the home buying process. This is where you and your agent visit homes to find one that matches your needs. If you have a smart phone, be sure to bring it along so you can take pictures. And focus on the more permanent features of the home, such as the location, the lot, the square footage, etc. Don’t worry about the paint or the decor — you can always change those things.

6. Make a smart offer based on market conditions

Once you’ve determined that the seller’s asking price is fair and reasonable, you are ready to make an offer on the property. In most cases, it’s wise to make the offer contingent upon the home inspection. It gives you a way to back out of the deal if the inspector uncovers an issue you’re not comfortable with. Your agent will help you prepare an effective offer. It’s one of their core skills.

7. Attend closing to sign your paperwork – – and get your keys!

Once you’ve made it through the inspection stage, you’re ready to attend the closing. (It’s also called “settlement” in some parts of the country.) This is when the title to the property is transferred from the seller to the buyer. You’ll also be signing a lot of paperwork and paying any other fees that are due.