Here’s what you need to know about the current real estate market

Whether you’re entertaining notions of buying or selling a home, you’re no doubt keeping up with housing news. And, what you’re seeing may concern you.

Doom and gloomers, naysayers and, curiously, even some experts are claiming that they are worried about the housing market.

The fact is, the real estate market is the one bright spot in the economy right now, and there are three reasons we can say this with confidence:

  • Pending home sales
  • Mortgage rates
  • Consumer confidence

Let’s take these one-at-a-time and break it down for you.

Pending home sales

When a homebuyer signs an agreement to purchase, the home moves from an actively for-sale status to a pending status. It is sold, pending the outcome of the contract’s details. At any rate, it is no longer on the market.

“U.S. pending home sales are at their highest level since the middle of 2017,” according to Neil Dutta, former senior economist at Bank of America-Merrill Lynch for the U.S. and Canada.

Pending home sales are a “leading indicator” of the health of the housing market, Dutta says in an article at BusinessInsider.com.

Pending sales are up in all regions across the country.

On a side note, despite what you’ll read in the news about the slowing of new-home sales, they have increased 15 percent so far this year as well.

Mortgage rates

Mortgage applications for home purchases have increased roughly 15 percent from last year. This is proof-positive that a decrease in mortgage rates is most definitely stimulating the market.

Especially when one crunches the numbers, it’s easy to see that buying a home when rates drop may just beat the cost of renting. Plus, you’ll accumulate wealth in the process of owning the home.

“Let’s say you considered buying a $300,000 home on a 30-year mortgage in the fall, but held off,” explains Gretchen Frazee, deputy digital editor for PBS NewsHour.

“If you were to buy the same house now, the interest rate drop could decrease your monthly payments by $160 per month and save more than $60,000 over the life of the loan,” she concludes.

Consumer confidence

Consumer confidence is measured by a number of governmental offices and universities. The University of Michigan, for instance, recently released its August consumer confidence poll which showed consumer sentiment, overall, declining.

Keep in mind when you read news about consumer confidence that it is a measurement of confidence in the economy as a whole.

Fannie Mae publishes the Home Purchase Sentiment Index which focuses solely on consumer confidence in the housing market. That is the measurement to watch when you’re keeping tabs on the real estate market as a consumer.

“According to the Conference Board, buying intentions for new homes have exploded to levels not seen since before the financial crisis,” claims Dutta. And, he is correct.

So, while journalists and other non-real estate professionals spread doom and gloom about the housing market, as you can see by Fannie Mae’s graph, consumers are feeling the opposite.

What about the predicted recession?

The U.S. economy, or “business cycle” includes four phases:

  • Expansion
  • Peak
  • Recession
  • Trough

Our economy’s “natural state” is expansion, where we experience robust sales, consistent wage growth, increasing GDP and low unemployment rates.

Many economists are saying we’ve reached the peak of the current economic cycle which typically lasts 10 years, so we’re long overdue for a recession.

Don’t allow recession talk to frighten you out of realizing your real estate plans, whether that means buying or selling a home.

Especially if you hope to sell this year or next, you’ll be happy to know that in all but one recession in recent history, homes actually sold for more than they did before the downturn in the economy.

None of the top economists who are predicting an oncoming recession blame it on the housing market (which played a large part in the 2008-2010 recession), so it should survive, relatively unscathed.

It’s important to keep in mind that, right now, the market is in the process of normalizing, coming down from the heady sellers’ market of the past few years.

Take a deep breath, ignore the doomsayers and continue on with your real estate plans.

Homebuyer tip: Don’t commit these negotiation blunders

As a homebuyer, unless you are buying direct from the owner, you’ll not negotiate with the seller of the home you have your eye on.

That’s your real estate agent’s job. But he or she negotiates on your behalf. So, when we talk about buyer negotiations with sellers, we’re referring to indirect negotiations through your agent, as middle-person.

Unless you’re an attorney, a salesperson or in another occupation that requires negotiating skills, we think it’s safe to say that it’s not something you do on a regular basis.

If done correctly, negotiation requires subtlety and the ability and willingness to find a win-win for all parties.

Certain negotiating tactics can railroad a real estate deal, instantly. Let’s take a look at some of these to help you avoid losing out on that home you want.

Using the home inspection as a negotiation excuse

The one blanket statement that we feel safe in making to all homebuyers is that they must get the home professionally inspected. Yes, even recently-built homes.

After the inspection, the inspector will issue a report, listing all of the problems or potential problems he or she found during a visual inspection of the home.

Some of the problems may be significant but most are not. If you find the report somewhat acceptable, but would like a few items repaired or replaced, we will reopen negotiations with the seller.

This is where some homebuyers become unreasonable, using nit-picking in an attempt to drive down the price of the home.

Keep in mind that, unless the home was listed for sale “as-is,” homeowners are only obligated to remedy defects that your lender or insurer will require (typically those of a health and safety nature), those specifically named in the purchase contract and those required by law.

The seller is not required to adjust the price instead of making repairs. And, most sellers won’t even consider replacing or repairing defects that can be remedied easily and inexpensively.

Everything, however, is negotiable and your choices in the deal include:

  • Asking the seller to make the repairs
  • Asking the seller to decrease the price of the home to compensate for the cost of repairs
  • Walk away from the deal

The homeowner’s choices include saying yes or no to the first two, coming up with a list of what he or she is willing to deal on, or deciding not to continue with the sale.

If you really want the home, think twice about reopening negotiations unless the home’s defects are major and will require great expense.

Insisting on making a lowball offer

We understand that you want the best deal possible, but a very low offer on a home you truly want to purchase is typically a foolish negotiating tactic.

In a buyers’ market, when there are lots of homes for sale but few buyers, you may get away with an offer under asking price. But a ridiculously low offer will most likely be treated as an insult by the seller.

It also makes you appear like a bargain hunter, ruining your credibility in the eyes of the seller.

A homeowner has several choices when confronted by a low offer. Unfortunately, many of them feel so insulted they won’t even respond.

So, instead of getting a chance to haggle on the price of the home, you’re shut out. Completely.

Assuming the seller wants to part with personal belongings to get the home sold

Sure, in slow markets, sellers may do almost anything if their home has been sitting on the market and they need it sold quickly.

But, before you demand that they leave the home’s furniture, appliances and the dog, keep in mind that desperation on the seller’s part is the exception, not the rule.

Unless expressly stated in the contract, the homeowner is selling their home, not their personal belongings.

Asking for too much makes you appear greedy – and not someone a seller is likely going to want to negotiate with.

The most important thing to remember, especially in a market that favors sellers, is that the seller may very well be negotiating with other buyers. Go in with your best and highest offer and try to keep it as “clean” as possible.

We’re happy to show you how.

 

Start preparing now for a fall or winter home sale

Did you know that winter is one of the best seasons to sell a home?

Fewer homeowners list their homes during winter so naturally, fewer homes sell. But homes that are listed in winter have a better chance of selling than those listed for sale in summer, fall and, yes, even spring.

Home sell quicker in winter too and, best of all, they sell for more than they do in fall and summer and only slightly less than in spring, according to a study by a national real estate brokerage.

The study looked at how much above list price homes eventually sold for during each season:

  • Spring: 18.7%
  • Summer: 15.1%
  • Fall: 14.7%
  • Winter: 17.5%

What’s equally surprising is that the winter numbers remain consistent regardless of the season’s severity. So, from Miami to Minneapolis, Anchorage to Las Vegas, the likelihood of selling and the percentage of list price realized is the same. Snow or no snow.

Get even more with this one brilliant tip

The way to get even more for your home, regardless of season, is to make it stand out among the competition. This is a bit more challenging in winter, when everyone’s deciduous trees appear lifeless and everyone’s lawn looks the same.

Since most homebuyers shop online, however, a photograph of your home is most likely how they’ll be introduced. By photographing it now, while the sun is shining and greenery is actually green, you’re giving your home a leg up on the competition.

Imagine scrolling through winter listings online and landing on one that completely stands out from all the rest. The chances are excellent that this home would go on your “let’s go see this one in person” list.

It’s called “green photography”

Surprisingly, it hasn’t dawned on the majority of other real estate agents to take advantage of this marketing opportunity, so the chances are excellent that your home may be the only one with sunshine in it’s “hero” shot (the first photo people see on the MLS).

To accompany the summer feeling in a winter home sale, we suggest you tour your landscape and make a diagram or notes on what is planted where.

We can then blow up an exterior photo and make notes directly on it as to where the mock orange is planted, what color roses they can expect in spring and which of those twiggy trees bears delicious peaches in the summer. We’ll leave it out for buyers to see when they tour the home.

Winter curb appeal is still important

Even in the most frightful weather, a home’s exterior appearance can make or break the homebuyer’s decision to leave the warmth of the car to venture up the walkway to your home.

Color is inviting, so anything that can be done to add color outside will pay off. Some of our clients repaint the mailbox and front door in summer or fall in preparation for a winter sale.

Others add pathway lighting for those after-work hours showings. You’ll find additional winter curb appeal tips that you should think about now at BobVila.com, HGTV and Pinterest.com.

It’s not easy to think about the thicker socks, scarves and hats we’ll be donning in just a few months. But winter will be here before we know it and when it comes to a future home sale, it pays to be prepared.

If you’re among those who will be selling in fall or winter, call us to get those photos taken now.

Your guide to understanding the home purchase offer

Home purchase offer

The seemingly endless hours searching for homes on the internet are finally over. No more open house visits, no more house tours with your agent. You found the one – the home you may have spent months waiting for.

“I want to make an offer.”

The statement that starts the process of turning your dream into a reality.

It’s easy to get overly excited. It’s far too simple to allow your desire to get the better of your common sense. Yes, you’re buying a home. But you’re also making a significant financial investment both now and for your future.

Of course, we’ll be with you every step of the way and you should feel free to ask us any and every question that pops up.

Read on for what you’ll need to know about your purchase offer and why we ask some of the questions we do.

Decisions

Your first decision will be a financial one: how much should I offer? Although we will most likely know the home’s market value, we’ll run a comparative market analysis to ensure that you don’t offer too much, or too little.

Not only is understanding the market value important, but knowing how long the home has been on the market may affect how much you offer.

Why?

Homes that sit on the market for longer than comparable homes typically sell for less and the most common reasons for this are that the home is overpriced or it may have problems that impact its value.

If the average time a home stays on the market is 30 days, and the one you love has been sitting for 90 days, we’ll want to find out why.

Remember when we suggested that you keep your excitement and emotions in check? Imagine how disappointed you’ll be if we find out the home has significant problems when you’ve already emotionally moved into it.

How long?

After determining your offer price you’ll want to give the seller a specified amount of time to mull it over.

Too long and another buyer may sneak in with a better offer. Too short of an offer expiration date may anger the seller. We will counsel you on this, as it varies, according to the type of market we’re currently in.

Other time limits you can negotiate include:

  • Loan approval (although there’s not much wiggle room here)
  • Approval of the appraisal
  • Approval of the title report
  • Approval of the home inspection
  • Acknowledgement of disclosures
  • The closing date
  • Date you want to take possession of the home

Think carefully about the last two on the list. You’ll need enough time for your loan to be approved plus to get packed before closing.

Closing and possession dates are often used as negotiating tools. For instance, if the seller needs more time because the home he or she is buying won’t close on the same day, offer to extend the closing date.

Or, offer to rent the home back to the seller for a specified amount of time (with stipulations).

Additional considerations

If we are aware of any problems with the home when we write up the offer, we can add a contract contingency stating that your offer is only valid if the problem is remedied.

You will have another chance to ask for additional fixes of items of concern in the home inspection report.

For instance, suppose the homeowner has disclosed that there are problems with the HVAC system. We can insert a request to have it fixed or replaced by the time escrow closes.

Then, the home inspection report mentions another problem of concern. We will then submit an amendment to the purchase offer asking for repairs. Sellers are under no obligation to agree to this but they often do to ensure the home sells.

While these aren’t the only contract considerations, we think these are among the most important that you should be prepared for.

As always, we are happy to answer any questions you may have.

3 Things every baby boomer should consider before buying or selling a home

We’re sure you’ve read about it: baby boomers aren’t moving and they’re wrecking the real estate market. They’ve decided to age in place, just when so many buyers want to buy a home.

To read real estate news about the baby boomer generation one would think the entire generation is passively aggressively thumbing their nose at both home buyers and real estate agents.

However, that reporting may not be entirely accurate. After all, who was it that kept the housing market afloat during the recovery from the Great Recession?

And, while it’s true that Millennials have a large presence in the housing market (39 percent of homebuyers), the two older generations (anyone 55 and older) make up 37 percent of home-buying pool.

If you haven’t bought or sold a home since the kids were in diapers, you’ll need to brush up on the basics if you plan to sell or buy. And we would love to help you.

1. Carefully reconsider ageing in place

“Ageing in place.” It’s one of those buzz phrases the media came up with to describe older Americans who “stubbornly” refuse to move and plan to live out their lives in their current homes.

And, many of them do. But many haven’t thought through that process. As the knees start creaking, the arthritis sets in and we become winded carrying groceries up a flight of stairs, reality sets in.

It turns out, that many boomers are realize that ageing in place doesn’t necessarily mean ageing in this place. According to a recent study by Home Instead Senior Care, one in four boomers are planning on selling their current home and buying a smaller, more age-appropriate one.

You know: one story, less square footage and low-maintenance, inside and out.

2. What will you do with your current home?

Your choices here are limited. You can sell the home (which many older, downsizing Americans plan to do) and use the equity you’ve built up for the new home. Or, you can rent it out and, if the home is paid off, enjoy the monthly income from your tenants.

Renting it out does come with drawbacks, however. Being a landlord, even if you do hire a management company, comes with many downsides. We always recommend that our boomer clients speak with their financial planners before making the decision.

3. Hiring the right real estate agent

Yes, this section does seem a bit self-serving. But, hiring the right real estate agent to help you out with selling and buying or selling and renting is critical.

I have many past clients who told me they were sick and tired of real estate agents speaking down to them, as if they are children. Condescending, full of outdated stereotypes and pushy is how many of my clients describe these agents.

We hope to be among the agents you interview to partner with you during this life transition. And, please, interview several. Don’t lower your expectations because you are in the driver’s seat.

We hope that you won’t entertain the thought of working with an agent who treats you as if you’re a doddering “senior citizen” and one that feels he or she knows best what is right for you.

Only you (and your financial planner) can and should make that decision.

High expectations for those you hire to assist you are good. Ensure that each agent you interview understands your expectations and listens, hears you and lets you know how he or she will help.

Please reach out to us – we’re happy to help.

Are you ready to stop renting and become a homeowner?

It’s a fact that homeowners are wealthier than those who rent homes. In fact, the average net worth of U.S. homeowners is $231,400.

Renters? $5,200. Crunch the numbers and you’ll learn that the net worth of homeowners is 44.5 percent higher than that of renters.

Sadly, the net worth of those who rent has actually decreased from $5,500 in 2013, according to the Federal Reserve’s Survey of Consumer Finances.

If you’d like to get on the homeowner wealth train, but are not sure if you’re ready, ask yourself the following questions.

 

How secure is your employment picture?

Love your job? More important, does your job love you? Job security – knowing you’re in it for the long haul – is a good sign that you can take on a monthly mortgage payment and be responsible for maintaining a home.

It’s also one of the things a lender will look at when considering how risky it might be to lend you the money for a home.

While it’s not impossible to get a mortgage when you’re new to a job, lenders like to see a two-year minimum tenure. If the new job is in the same field as your old one, it shows commitment to a field of work, which is attractive to lenders.

 Do you have any money saved?

Don’t believe the myth that you need 20 percent of the purchase price of a home for a down payment. While this may have been true in the past, it isn’t any longer.

Depending on your circumstances, you can obtain a mortgage for nothing down or a down payment as low as 3 percent. Then, there are the many down payment and closing cost assistance programs.

You will, however, need a bit of cash when you purchase a home for the earnest money deposit, down payment, closing costs and moving expenses.

If you don’t have any savings, you may not be ready to buy a home. If you do have some money set aside, speak with a mortgage broker to find out if you qualify.

How’s your credit?

If you’re unsure, order your free annual credit report from AnnualCreditReport.com. This is the only site authorized by the federal government that offers free credit reports.

A strong credit score (as compiled by Fair Isaac Company, or FICO for short) is higher than 700. Borrowers with strong scores get lower interest rates so raising your score is a worthy endeavor.

This doesn’t mean you can’t get a mortgage with a lower score, because you most certainly can. In fact, the Federal Housing Administration (FHA) wants to see a score of 580 or higher but even those with lower scores may otherwise qualify.

It isn’t as difficult or time consuming as you may think to raise your credit score. Learn “How Student Loan Borrowers Improve their FICO Scores” at FICO.com. And, learn some general information on how to raise your credit score at NerdWallet.com.

Do you need more room?

If you’re currently in an apartment, the chances are good that you’d like or maybe even need more space. Apartments by their very nature are typically small and very cramped. Worse, they lack sufficient storage space.

Especially if you’re starting a family or hope to soon, dreams of a house may be swimming in your head. If so, you may be ready to become a homeowner.

 Are you tired of paying your landlord’s mortgage payment?

Paying rent every month and watching that money go into someone else’s bank account gets old after a time. As mentioned earlier, one way to accumulate wealth is through putting that monthly payment in your own pocket by building equity through home ownership.

Depending on the current market, you may be able to purchase a home with a monthly payment that is less than or only slightly more than your current monthly rent payment. A mortgage professional can crunch the numbers for you to find out.

Feel free to reach out to us with any questions.

 

How to sell your home fast: 3 tips

For whatever reason, many homeowners need to sell their homes as quickly as possible. If that describes you and you don’t want to hand over a huge chunk of your equity to an iBuyer or investor, read on.

1. Pre-sale home inspection

When we looked at the common obstacles along the way to closing a home sale, several steps loomed large. But, none larger than the home inspection.

Soon after you accept an offer to purchase your home, the buyer will send a home inspector to your house to inspect its condition. Soon thereafter, he or she will issue an inspection report to the buyer and I’ve yet to see one that didn’t have at least a few, even minor, problems.

Some problems, such as those that can impact health and safety, will need to be repaired. Even if the buyer doesn’t request it, the lender may, especially if the buyer is using an FHA-backed loan to purchase the home.

Depending on the scope of the work, this can significantly slow down the sale of the home.

Fixing items before putting the home on the market is a smart move if you need to sell quickly. It also shows potential buyers that you’re dealing in good faith.

Your buyer will likely order his or her own inspection so keep in mind that all issues in your report will need to be disclosed to potential buyers.

Ridding the sale process of the biggest stumbling block is the best way to ensure your home sells quickly.

2. Ensure you have clear title

Shortly after you’ve accepted the offer to purchase, the buyer will obtain title insurance. First, however, the title company will want to find out if you truly are the rightful owner to the home, that nobody else has a claim to it and that there are no liens against the property.

A problem discovered in a title search is known as a “cloud” on the home’s title. Home sellers are often surprised to learn that there’s a cloud, but it’s a common occurrence.

The most common cloud is a lien against the property and many homeowners aren’t even aware of it. Either it was placed so long ago that the homeowner forgot or it may be so new that he or she isn’t yet aware of it.

Be proactive if you suspect that there may be a cloud on the home’s title. A trip to the county recorder’s office (where you can search public records by address) is often all it takes. Otherwise, you can order an official title search from a title company. While the fee varies, it typically starts at around $200.

If a lien shows up on the title report, you’ll be responsible for clearing it. You can dispute it, but this is a court procedure that takes time. Paying the amount owed is the quickest way to clean up the property’s title.

But liens aren’t the only problem that may show up on a title report. Some of the more common title defects include:

  • Clerical errors
  • Disputes over property boundaries
  • Encroachments and easements
  • Marital status falsely reported
  • Fraud
  • Forgery
  • Improperly probated wills
  • Unknown heirs
  • Unreleased deeds of trust

Some of these are quick fixes. Others, such as clerical errors take substantially longer.

In fact, “depending on the nature and extent of the error, it can take anywhere from days to months to correct these types of issues,” according to the experts at LinearTitleandEscrow.com.

Avoid this source of major slowdowns in the sale process by checking your title before putting the home on the market.

3. Don’t play games with your home’s price

“More than half of all closing problems are related to mortgages,” according to Peter Miller at MyMortgageInsider.com.

Slightly more than 20 percent of these problems are caused by appraisal issues.

Unless the buyer is paying in cash, he or she will be using a lender for financing. The lender will send a property appraiser to the home to determine the value.

Much of the time, the appraiser’s evaluation meets the price agreed upon. Sometimes, however, it doesn’t and negotiations reopen.

There are several ways to work around an appraisal problem but most of them take time.

Avoid appraisal problems by understanding how market value for a home is determined, hire a listing agent experienced in determining fair market value and avoid the temptation to overprice the home.

We are happy to answer any questions you may have on how to sell your home quickly and still get top dollar.

3 Easy improvements that help sell homes

As the real estate market changes, home sellers may need to take some extra steps to get their homes sold quickly and for top dollar. The right improvement projects may be one of the steps you’ll need to consider.

If so, it’s important that you don’t select projects based on your tastes or on suggestions from others (unless it’s your real estate agent).

Always focus on items that need repair first. Then, when it comes to improving the home, consider only those projects that will add value or cosmetically appeal to home buyers.

We’re happy to share our knowledge of what’s popular with homebuyers, so feel free to ask.

In the meantime, let’s take a look at three home improvement projects that are often DIY jobs and will help your home sell quickly.

1. You had me at the curb

That first impression is critical when it comes to getting people out of their cars, up the walkway and through the front door of your home. So, let’s get the curb appeal taken care of first.

Start with cleaning and de-cluttering – the same way you will start on the interior. Rake the beds, remove debris, toys and anything else that isn’t part of the landscaping.

Get the lawn in shape, prune trees and shrubs, yank and replace dying ones. A layer of fresh mulch in the planting beds adds the perfect final touch.

How is the rest of the front of the house looking? Clean the gutters, paint the trim, railings and door if they need it. By the way, a Zillow study finds that a black front door increases sale price by 2.9 percent.

Finally, add a pop or two of color with potted plants on the front porch, near the door.

2. Paint is the wonder drug

New paint on the home’s interior walls can transform the appeal. Fresh paint makes the home appear well-cared for and in move-in condition.

To be safe, you may want to choose neutral colors, such as white, off-white or gray. But, you don’t have to, and the Zillow Paint Color Analysis proves that.

Avoid brick or barn red in the kitchen, as homes with this color scheme in the kitchen sold for more than $2300 less than list price. Brown dining room? Paint it another color, or get nearly $1700 less than you hope for the home.

Learn about the money-making paint colors at Forbes.com and ApartmentTherapy.com.

3. Concentrate on the kitchens and bathrooms when upgrading

We aren’t recommending major renovations here. But, if either or both of these rooms require basic updates, performing them is critical.

Paint is the first step. Then, check the sinks and faucets. Replacing them isn’t expensive and will give the rooms a contemporary look. Here are a few other little jobs that can update the look of the kitchen and bathroom:

  • Refinish the cabinets
  • Add new knobs and pulls on the cabinets and drawers
  • If you have the budget, consider replacing countertops, if they need it
  • Re-caulk the tub and toilet
  • Ensure that the lighting isn’t outdated
  • Purchase new linens, such as shower curtain, coordinating towels and rug
  • Choose a few stunning accessory pieces
  • Avoid cluttering the countertops

Most of these upgrades are DIY jobs. The savings offered by doing it yourself helps increase your return on investment when the home sells.

 

Should I buy first or sell first?

More than 71 percent of home sellers look at homes for sale while their current home is on the market, according to a 2017 Zillow report. Looking back, 24 percent of them said they wished they would have started the selling process earlier.

Most of these home sellers ran up against a common problem: Should I buy first or sell first?

Let’s take a look at just some of what you should consider and a couple of solutions.

Current market conditions

In a seller’s market (when there are lots of buyers looking for homes but few homes available) you’ll most likely not have to worry about the home selling. But, once it does, you’ll be joining the ranks of all the other buyers, competing against one another for the few homes on the market.

For this reason, many home sellers choose to rent for a time after selling, until the market changes in their favor.

Others can’t stand the thought of having to pack up and move yet again. Determine your tolerance for this scenario.

Finances

If you don’t have a large cash reserve, you’ll need the equity in your current home to purchase your new one. This means you’ll have to either sell your current home before buying or choose from among the other options we outline below.

The two-house payments conundrum

Another major concern we hear from our listing clients is that they’re afraid that if one side of the deal concludes before the other, they’ll be faced with having to make two house payments.

If your budget can tolerate this eventuality, then you’ve nothing to worry about. If not, read on.

Solutions to consider

Luckily, you have several remedies to choose from when faced with the “should I sell first or buy first” question.

Bridge Loan

A bridge loan is a short-term loan that provides instant cash flow. They’re typically only provided to borrowers with high credit scores and low debt-to-income ratios.

Learn more about bridge loans at Investopedia.com.

HELOC

The Home Equity Line of Credit, or HELOC for short, offers a way for you to get at all that equity you’ve built up in your current home. This is money you can use to buy the new home and then you will pay off the HELOC with the proceeds from the sale of the current home.

There are several disadvantages to using a HELOC to come up with the money for your next home. Speak with your lender and financial advisor about this option.

Borrow against your 401(k)

Ask financial experts if borrowing money from your 401(k) to come up with the cash for your new home is a good idea and you’ll get one of two answers: “Sure” or “No way!”

The latter camp includes pros who remind you about the fact that you’ll be losing the compounding benefits of your invested money. The former group will tell you to go for it because real estate is an amazing investment and, besides, you can pay yourself back.

Again, please speak with your financial planner before deciding on this option.

Negotiate with the buyer

It’s always worth it to attempt negotiating certain contract terms with the buyer of your current home.

Ask the buyer for a longer escrow, such as 90 days, to give you time to house hunt for the next home. You might also ask the buyer to consider renting your home back to you after the sale closes. Offer a healthy security deposit and agree to pay above-market rent to cover their mortgage payments, if necessary.

There are disadvantages to the rent-back scenario, so run this idea by your attorney.

Simultaneous close

Although it is often challenging, a simultaneous close is a common way of dealing with buying/selling. This type of transaction times the close of both transactions (the sale of your current home and the purchase of the next home) to occur simultaneously.

Yes, there are dangers in this option, especially in the hands of an inexperienced real estate agent.

Whether to buy or sell first is a common dilemma and both have their pluses and minuses. We’re happy to discuss this with you in more detail; feel free to contact us.

The “20% down payment” myth

Money management guru Dave Ramsey advises that “The ideal way to buy a house is the 100 percent down plan—pay cash for the whole house.” Wouldn’t it be nice if all of us could participate in that plan?

The fact is, in February of this year, 77 percent of American home buyers used a mortgage to purchase their homes, according to RealtyTrac.com.

With a mortgage, however, comes the need for closing costs and cash upfront for a down payment. Many would-be homeowners hesitate applying for a mortgage, thinking they need 20 percent of a home’s purchase price as a down payment on the loan.

If you’re among them, we have good news for you: you can buy a home with zero down payment (if you qualify) or with a very-low down payment–3.5 percent in many cases.

Let’s take a look at some of the alternatives to the 20 percent down payment.

There are several ways to buy a home with NO down payment

Did you or your spouse serve our country in the military? If so, you may qualify for a loan guarantee from the U.S. Department of Veterans Affairs (the VA).

Because the VA guarantees to repay a portion of the mortgage should the borrower default, lenders offer attractive rates and terms and a zero down payment loan.

The VA-backed loan is available to qualifying veterans, those currently serving and surviving spouses. Learn all the details at VA.gov.

USDA

The United States Department of Agriculture (USDA) offers several home loan options for low- or moderate-income borrowers. Neither require a down payment and the “catch” is that the home you purchase must be in a qualifying region, typically rural.

The home must also be “modest” for the area and generally excludes homes with swimming pools and other high-end features.

But, it’s an ideal way to become a homeowner, if you qualify. Learn more about these programs online at USDA.gov.

 

Use down payment assistance programs

If you don’t qualify for the zero down programs, you may want to look into some of the many down payment assistance programs available.

You’ll find many are offered by federal and state government entities as well as local municipalities.

Federal programs include help for teachers, fire fighters, medical personnel and police officers. There are programs for Native Americans, Alaskans and Hawaiians as well.

We’re happy to give you information on regional programs – reach out for more information.

Consider programs with a low-down payment requirement

If you don’t qualify for one of the zero down payment programs, pursue a mortgage through one of the programs with low down payments.

FHA

Lenders are far more amenable to loan money to borrowers with less-than stellar credit when the government guarantees the repayment.

The Federal Housing Administration (FHA), a department within the U.S. Department of Housing and Urban Development (HUD), a loan program you’ll want to pursue if this sounds attractive to you.

Although the program has experienced several changes over the years, it’s still the most widely used mortgage program by first-time home buyers.

The down payment requirement for an FHA loan varies, from 3.5 percent to 10 percent of the loan amount. Which you’ll pay, depends on your financial situation and, naturally, each lender’s requirements.

The biggest drawback of the FHA mortgage program is that you’ll pay for being what lenders call “high risk” or “sub-prime” borrowers. This payment is in the form of a mortgage insurance premium (MIP) – an extra payment tacked onto your mortgage payment each month.

In the past, it was possible to get rid of the MIP when you reached a certain amount of equity. That changed in recent years and now the insurance remains for the life of the loan, if you pay less than 10 percent down when you purchase.

If you pay more than 10 percent down, MIP is cancellable in 11 years.

With a conventional loan, on the other hand, you can dump the MIP when you reach 20 percent equity in the home.

Fannie Mae and Freddy Mac

Fannie Mae and Freddie Mac started backing loans with a 3 percent down payment back in 2014 and 2015.

To snag one of these loans, you’ll need to purchase private mortgage insurance, your credit score will need to be at least 620 and you’ll need to agree to participate in home ownership counseling classes.

Questions? Feel free to reach out to us. We’re happy to help.