If you are a real estate agent who is helping homebuyers navigate today’s fast-moving housing market, you could probably use a trusted and reliable lender on your side. And City Lending could be the right preferred lender for you, for a whole host of reasons. Let’s delve into a few of these reasons and look at how they can help you sell more homes.
The Importance of Pre-Approval
As you surely know, we’re in a seller’s market — and a red-hot one at that. Most homes for sale get multiple offers these days and bidding wars are all too common. You’ve been in a few yourself and faced off against a selling agent who has ignited a bidding war. So, you understand the importance of a buyer having a pre-approved mortgage in getting a home deal done. We do too. That’s why we’re dedicated to providing a swift and smooth pre-approval process to make home-buying easier for both you and your clients.
Loan Products for Every Homebuyer
As homebuyers are as unique as the homes they seek, we have a wide-ranging selection of loan products to meet a variety of needs. Here are a few you can suggest to your clients.
FHA Loans. These can be perfect for first-time buyers or for those borrowers who might not qualify for conventional loans. Less money down is a big plus with an FHA loan, often requiring as little as a 3.5% down payment for borrowers with credit scores of 640 and higher. All your client needs to do is to show two years of W-2s and pay stubs going back 20 days. And City Lending doesn’t add overlays; we underwrite using FHA guidelines.
ITIN Loans. Chances are you’ve come across a potential client with worries that their immigration status will prevent them from getting a mortgage. But that’s not necessarily the case. Not if they choose an Individual Tax Identification Number (ITIN) Loan Product. Foreign-born people who lack social security numbers may still quality for home financing if they are legally allowed to work in the U.S. Two years of tax returns and two months of bank statements is all it takes to get the approval process started.
Bank Statement Loans. Your roster of clients almost surely includes some people who work for themselves, from small business owners to workers who are a part of the ever-growing gig economy. So, you know the difficulty they can face trying to meet the financial documentation requirements of conventional mortgages. Enter Bank Statement Loans, which use a potential borrower’s bank deposits in determining their eligibility for a loan. With lenient requirements — people with credit scores as low as 620 and debt-to-income ratios as high as 50% can qualify.
VA Loans. If you’re showing listings to veterans or active members of the armed services, they’re likely to be interested in VA loans. These government-backed products have some serious selling points: the possibility of putting no money down, no need for mortgage insurance, eligibility for those with credit scores as low as 600, and more. All with a reasonable interest rate and possible for amounts up to 1 million dollars.
FHA 203k. Whether you have a client who is looking for a fixer-upper or one who just wants to make their new dream home a little dreamier, the FHA 203k Rehabilitation Loan Product might be right. This loan, insured by the Federal Housing Administration, allows homebuyers to finance their renovations — perfect for first-time homebuyers who may go the more economical route of buying a home that needs some work.
Rely on the Support of City Lending
You might not have heard of City Lending in 2014 when we were getting started with a small, but dedicated team. We’ve since grown to have over 200 employees, a success story that’s founded on our dedication to our clients, our investor relationships, and the ever-growing City Lending in-house team. Should you choose to work with us, you’ll be able to take advantage of our considerable resources.
With a dedicated staff of loan processors and assistants, our loan originators are never bogged down with paperwork, leaving those important but often cumbersome details to a team of pros. Who do it quickly. Our compliance team reviews content for turnarounds in 48 hours or less. For you, that means you can count on some of the fastest loan processing times in the lending business. We move so swiftly because we don’t outsource our work, handling everything from processing and underwriting to managing an appraisal roster in-house.
There may be no real estate agent on earth who hasn’t fielded calls from impatient homebuyers, fretting while they wait for the underwriting process to complete. While we can’t make underwriting time go away, we do have the high-tech tools to make it as expedient as possible. These include Optimal Blue, LoanBeam software, the ability to track the mortgage process with SimpleNexus, and access to fast financial verification through Birchwood services.
Fast Closings and Communication
What does all this tech and support staff mean for you? Fast closings, for one. We don’t want financing to linger in limbo any more than you or your clients do. So, we’ve assembled a team of highly skilled professionals and created an unrivaled system to streamline the process. As you probably know, there are lots of things that can spoil a real estate deal. We strive to make sure that financing isn’t one of them.
As with most relationships, communication is fundamental to maintaining a good lender-agent relationship. It’s why we put considerable attention and resources toward promptly answering every call, email, and text from agents. We know that in today’s market, homes sell fast. You need answers fast, to sell that current home and to move on to selling the next one.
All signs so far show a market frenzy this spring, as sellers traditionally favor springtime for listing homes, with this season as an optimal time to sell in 2022. Let’s delve into how buyers can best navigate this red-hot real estate season.
Understand that you’re entering a busy buying time
As the spring homebuying season got off to an early start this year, it’s well underway. Rising mortgage rates have prompted more homebuyers to hit the market in hopes they’ll lock in a good rate before rates go any higher. Though you would do well to remember that it’s no time to panic; these rises are from historical lows and aren’t expected to increase dramatically. Some perspective — and some deep breaths — will serve you well during the spring buying season.
Seek Opportunities Amid Challenges
Best not to candy-coat this one: the spring homebuying season does present some significant challenges for buyers. Both mortgage rates and home prices are on the rise, while the U
.S . housing inventory is at a near-record low. According to the National Association of Realtors, as we headed into Spring 2022, inventory was down over 15% from the year prior. Yet home buyers seem undaunted, eager to purchase homes this spring despite the challenges they’ll have to navigate. And you shouldn’t be daunted either. That perfect home, and the financing for it, are out there.
Strategize for a Seller’s Market
It’s a fact: conditions are favoring sellers in today’s real estate market. So, the wise homebuyer should shift their tactics accordingly and follow a few of these tips:
- Don’t Fall for a Deferred Showing. Sellers often use this tactic to create a false sense of a demand for a home. An agent will list the home in the Multiple Listing Service but defer showings for about a week, with an open-house time on one day, usually Saturday or Sunday. It’s to create a busy open house and give the appearance that there’s lots of competition.
- Embrace Flexibility. To land your dream home, you may have to be more flexible than you would otherwise normally be. This may mean being open to changing your move-in date and keeping any contingencies you have in your offer to a bare minimum — just the basics, such as an inspection or an appraisal if required by your lender.
- Do Your Online Homework. For lots of homebuyers, visiting open houses can turn into something of a pastime, enjoyable strolls envisioning their lives in new homes.If you’re serious about finding your next property, each in-person visit must count, so thoroughly review every listing online and narrow down the list of those you’ll visit to just serious contenders.
- Adjust Your Budget Down. First, get comfortable with a simple fact: most homes sell for more than their list prices in the current market. How much more? That varies, but it is common for homes to sell for between $50,000 and $100,000 over listing prices. You should shop accordingly. For example, if you get pre-approved for a $400,000 mortgage, shopping in the $300,000 range would be wise. Having a higher pre-approval amount will give you a competitive edge in bidding and ensure you don’t go over your budget.
Prepare for a Bidding War
Yes, the prospect sounds unpleasant, as nobody wants to enter a bidding war, but chances are fairly good you’ll find yourself in one. Last spring, the bidding wars hit a fever pitch, with over 74% of offers on homes meeting with competition. Here are some tips to ready yourself for a bidding war:
- Loan Pre-Approval. In today’s searing-hot housing market, the buyer who has a mortgage pre-approval letter in hand, has the clear advantage. It’s the next-best-thing to offering all-cash — and on equal footing in some cases — as having a pre-approved mortgage always makes an offer more attractive to a seller compared to that of a potential buyer without financing in place.
- Have Your Financing Team Ready. Be prepared to hit the ground running when you find the perfect home by already being established with your City Lending loan originator. It is helpful to also know who you plan to use for your homeowners insurance, home inspection, title services, and loan closing.
Consider an Escalation Clause. First-time homebuyers may assume that in a bidding war, competing bids get increasingly higher in a back-and-forth. But many sellers ask for a buyer’s highest bid at the onset. However, this bid can include an escalation clause, an addendum telling the seller that you’ll go higher if there’s an offer that’s higher than yours, usually with a maximum amount specified.
- Offer an Appraisal Gap Guarantee. You get an appraisal gap when a home gets appraised for less than an offer. Which is a problem; lenders don’t like to loan more than a home is worth. To guard against this potential issue, you can offer appraisal gap coverage, telling the seller that you can make up the difference with a higher down payment, offering the seller peace of mind and upping your chances you’ll come out on top in a bidding war.
- Write a Personal Letter. To distinguish yourself from other bidders, you might want to include a compelling personal note with your offer. Don’t overdo it — short and sweet is best — but if you can convey a heartfelt reason you are the right person for this home, it might be the small push that swings the deal your way. Yes, a real estate sale is a financial transaction, but it’s also a personal one. Many sellers feel emotional about moving on from a home they may have lived in for several years – knowing it is going to someone who feels a special connection to the property can make a big difference.
Just as days get longer, flowers bloom, and woodland creatures awake from hibernation, spring means a busy homebuying season. And it’s the perfect season to partner with City Lending and its suite of loan programs to fit the needs of every borrower.
It’s a simple fact: home prices are rising. Considerably. The combustible combo of low interest rates and low housing inventory has lit a fire under the housing market and brought it to a boil that won’t simmer anytime soon. Homebuyers have been, and will continue to, pay over list prices. But should you? Let’s delve into the details.
Why would one pay over the listing price?
It may seem like a real risk. If you pay more for a home than its listing price, and that price is fair for the area you are taking on negative equity. Therefore, building equity in your home will take longer, affecting a range of things: how long you may have to pay for private mortgage insurance, when you can refinance your mortgage loan; and when you’ll be able to get a home equity loan. Plus, if you decide to sell the home anytime soon, there is a chance you’ll take a loss. While all these things are true, it still makes sense for lots of homebuyers to pay above the appraised value of a home.
Rising home prices is one reason. While we may not get the record level of increases in home prices we’ve witnessed in the recent past, no experts expect we’ll see significant price drops. Rather, it’s more likely that moderate price rises are on the horizon, and that your home will one day be worth significantly more than when you bought it. Here are some things to consider when faced with the prospect of paying over the list price:
- Affordability. If your mortgage loan doesn’t cover the cost of the home, the shortfall is coming out of your pocket. This is in addition to the required down payment. If you can handle that cash outlay without depleting your savings, you might wish to pay.
- Longevity. Beyond the home’s price tag, you’ll have to consider closing costs, moving costs, and the possibility of home upgrades and repairs. If you plan to stay in a home for under five years, the investment may not pay off no matter where home prices are when you decide to sell. If you’re in it for the long haul, it may be the best investment you ever make.
How does paying over the appraised value affect my mortgage?
Lenders generally don’t finance mortgages for more than the appraised value of the home. Which makes knowing how much you can afford to spend with a pre-approved mortgage even more important. And as you’ve got about a 50/50 chance that the house you want to buy will sell above its listed price, you might want to shop just below your loan limit. That way, when you find the right house, you’ll know there’s a cushion and that the mortgage can come close to covering the selling price.
How much are home prices rising?
According to the National Association of Realtors, the median home price across all different types of housing was $350,300 in January 2022. That’s a rise of over 15% from January 2021. The jump wasn’t an atypical spike, a continuation of a long-running trend, marking the 119th consecutive month we’ve seen of increases, the longest-ever such trend in recorded history. And going forward? Based on analysis by the American Enterprise Institute’s Housing Center, the forecast for 2022 looks to be an overall rise in home prices of 12%.
Are things the same all over the country?
No. California is seeing some of the nation’s widest discrepancies between home list prices and selling prices, with Oakland, San Jose, and San Francisco reporting some of the nation’s highest divides. In San Francisco, a staggering 70.8% of houses sold for more than the asking price. Nationally, that number is lower, with about 50% of homes selling over their list prices in 2021, according to Redfin. Which was 23% higher than the previous year’s numbers for houses that sold over list prices.
How do I know if a list price is competitive?
You may go into the house-hunting process understanding that list prices are high these days, and you may very well pay more than the listed price. But how can you tell if the list price is competitive in the first place? Your real estate agent can do a comparative market analysis (CMA) of similar property sales in the area to make a side-by-side comparison. These reports are often used by sellers to set the prices, but prospective homebuyers can also use them to evaluate prices to make competitive bids.
Where is the housing market headed in 2022?
All signs say that the competition among home buyers will be just as fierce as it was last year. Homes are selling faster: in January 2022, the national average home sales time was 61 days, 10 days faster than in January 2021 and about a month faster than during the years prior to that. The prices of homes are rising, we saw a jump of more than 10% of median listing prices in January 2022 over January 2021. But the outlook isn’t dire — lots of market watchers expect this appreciation in home prices to slow over the course of 2022. Redfin’s chief economist Daryl Fairweather predicts that when average mortgage rates hit 3.6%, we’ll see competition cool to match the more moderate levels we had in 2018.
Buying Can Still Beat Renting
Even with the recent rise in home prices, buying a home can still be more affordable than renting in lots of places. According to Realtor.com, the per-month cost of buying a home is less than renting in over 75% of America’s largest metropolitan areas. Government data shows that rents are rising across the U.S., climbing 3.8% over the last year alone. The national average pales in comparison to some of the country’s hardest hit areas, such as Orlando with almost a 30% rise in rental prices, or Austin with rent prices jumping 40% and more. With rent high everywhere, and no indications they’ll drop, buying a home may make more sense now than ever.
This St. Patrick’s Day, luck doesn’t have to be limited to the Irish. Any potential homebuyer can find treasure at the end of the house-hunting rainbow. But instead of counting on the magic of a four-leaf clover, try following these proven methods for finding a house.
Get Your Finances in Order
Buying a house takes some groundwork; you need to be on sound financial footing and take actions to resolve any issues before you start searching for a new home. Here are a few financial prerequisites to keep in mind as you prepare to buy a home:
- Down payment. There are some ways to buy a home with no money down — one popular such option is a VA loan — but chances are you’re going to have to put down cash. How much? Most conventional mortgage programs require from 3% to 5% down. FHA loans, for example, require minimum down payments of 3.5% of the home’s sale price. While not realistic for many homebuyers, putting down 20% is ideal; that way you can probably avoid having to pay for private mortgage insurance (PMI) as you usually must when less than 20% is put down.
- Credit score. You won’t be very lucky in getting approved for a mortgage if you have a terrible credit score. What should your score be? While this differs with individual situations and lenders, often between 580 and 620 is the minimum score one can have and still get approved for a mortgage. So best to check your credit before the house hunting begins, and the three major credit reporting companies, Equifax, Experian, and TransUnion, are each required to give you a free report.
- DTI. Knowing your debt-to-income ratio is important; your lender will use your DTI to evaluate your mortgage application. A DTI of more than 43% is usually considered high, making the borrower more of a risk to the lender. To figure out your DTI, just divide all the debt payments you make each month by your gross monthly income. If you can, pay down debts to get your DTI as low as possible.
Mortgage Pre-Approval is Key
You might be tempted just to go for mortgage pre-qualification as you begin your home search. You’re just starting to look, so what’s wrong with just getting a general idea of the mortgage you might be approved for? Right? Wrong. While pre-qualification can be a helpful tool in getting a sense of how much you can afford to pay for a home, pre-approval offers a much more effective tool that can be determinative in getting the house you desire. Some real estate agents won’t even work with potential buyers unless they have pre-approved mortgages.
Pre-approval letters, which are issued by lenders after they thoroughly evaluate a potential borrower’s financial situation, tell sellers you mean business. While not a guarantee you’ll get financing, a pre-approved mortgage proves that you more than likely meet the conditions of the mortgage loan you’ll need to buy the home you’re bidding on.
Figure Out the Features You Want
What kind of home do you want to live in? And where? These are huge questions with a variety of factors that can at times feel at odds. From the number of bathrooms and bedrooms to proximity to schools and public transportation — it can all feel dizzying. You might seek some help from online features and amenities checklists to see what experts have to say about what homebuyers most look for when house hunting.
Making a list of the features you want will also help with any online searches. Both consumer sites and the Multiple Listing Service systems that realtors use have filters that narrow searches by these features. If, for example, you don’t want a home with carpeting, you can eliminate those with carpeting from your searches.
Understand How Long Things Take
Having some idea of how long you’ll be looking for a home can bring you peace of mind. The same holds true for understanding how long it will take to close on a house after your bid is accepted by a seller. According to the National Association of Realtors, homebuyers usually search for about eight weeks, on average looking at eight homes: five in person and three houses only online. Closing on a house often takes between 30 and 45 days. So, from your first look at home listings to having the keys to your new house in hand, you may be looking at about three months or more.
Choose the Right Real Estate Agent
While online tools are wonderful — and NAR data shows that a whopping 95% of homebuyers searched for houses online — there’s nothing like having an in-person real estate pro in your corner. So much so that 87% of recent buyers bought their homes with help from brokers or real estate agents. A small minority, just 7%, bought their homes from builders or their agents.
Most buyers go with the very first agent they speak to; 73% of homebuyers interview just one real estate agent. But you might not want to follow the masses here, as interviewing up to three potential real estate agents seems like a wise choice. Get a feel for each agent, see if you’re in sync about the kind of home you’re looking for and how you’d like to go about searching for it. As these chats with potential agents are job interviews, you might approach them as such.
Pick the Perfect Mortgage Professionals
This one’s easy — City Lending has been the right choice for many homebuyers and we’re likely the best lender for you too. Our team is ready with a wide range of mortgage programs to meet the unique needs of individual borrowers.
Your proverbial pot of gold might be anything from a cozy cottage to a large luxury home. But there’s one thing all potential homeowners share: partnering with the loan professionals at City Lending will probably make you a lot luckier.
If you’re in the market for a new home, you’ve surely noticed that today’s housing market is red hot. Searing with no indications that it’ll cool off anytime soon. Competition is fierce and bidding wars are common, making how you approach your home-buying journey all the more important.
Determine What You Can Afford
A common rule of thumb, used by the Federal Housing Administration and some lenders, is that 31% or less of your income each month can go to a housing payment. That is, if you’re also making monthly payments toward debt, and that debt isn’t more than 43% of your income — your debt-to-income ratio, or DTI. If you’re fortunate enough to be debt free, you may be able to allocate 40% or more of your income each month to payments on your home. An online mortgage calculator is a good way to get an idea of what you can afford.
The Importance of Mortgage Pre-approval
Beyond gauging what you can afford on your own, the mortgage pre-approval process can often give homebuyers a much better idea of what they can spend on their new homes. When you seek to get pre-approved for a mortgage, a lender will do a credit check and go over your financial information, such as tax returns, your debts and assets, employment history, and other information that determine your creditworthiness. Unlike pre-qualification, which offers a general estimate of what you can afford, pre-approval takes a detailed look at your financial situation.
Then what? If you qualify for preapproval, your lender will set a maximum amount you can borrow and give you a pre-approval letter that’s usually valid for 60 or 90 days. This letter doesn’t guarantee you’ll get a loan for that amount, but if your financial situation doesn’t change by the time you apply for a mortgage, the pre-approval amount should be very close to the actual loan amount.
But the benefit of a pre-approval letter goes far beyond determining affordability — home sellers generally want buyers to have pre-approval letters in hand. A pre-approval letter shows a seller that the buyer is serious, and that there aren’t likely to be any major road bumps in getting a mortgage and thus getting the deal done in a timely manner. In today’s competitive market, having a pre-approval letter can mean the difference between getting your dream home or losing out to another buyer.
Look and be Ready to Leap
Historically low interest rates and low inventory have combined to overcharge the housing market, and so homes sell fast these days; the national average is 22 days to sell a house, but many homes find buyers within just days of hitting the market. The clock is ticking for homebuyers — most have days, not weeks, to make decisions when they find the home they want. An active approach is best, checking new listings often, putting daily effort into the search, and investigating each potential purchase immediately. And when you’re ready — go for it! This is the part where the importance of a pre-approval letter can’t be stressed enough. Getting bogged down in a mortgage approval process as your home goes to someone else is exactly what you don’t want.
Keeping Cool in a Red Hot Market
Remember to take some deep breaths, step back from the process, don’t go into panic mode, fearing that your perfect house will get snatched up by a buyer who moves faster than you do. This frenzied approach could lead you to make mistakes. As is often the case with new relationships, if you think a home is “love at first sight,” you probably haven’t gotten under the surface to see its flaws. But don’t be turned off by every flaw you encounter when shopping for a home. You’ll probably have to find some compromise with the home you buy, realizing that it’s not absolutely perfect, but that the pros far outweigh the cons.
Finding the Right Home for You
This can be a tough one; there are hundreds of factors — perhaps even thousands — that one could consider when looking at a potential new home. All of these factors aren’t equally important, and you’ll need to narrow things down to the most important features of a home, those that will affect your everyday life as well as your investment. Here are some major things people often consider when buying a house:
- Price. After you’ve done your due diligence with a mortgage calculator, and perhaps pre-approval, you should take a deep dive into your spending habits. Plus what your move will cost, the closing costs of the mortgage, and the cost of any improvements or repairs the home may need. Take a realistic look at what you can pay.
- Location. Where you live needs to fit your lifestyle; do you want to live a suburban, rural, or more cosmopolitan life? If you have kids, you’ll want to check out the schools in the area, and if your potential new home is in a kid-friendly area.
- Bedrooms. If you have children, or plan to, this is a big one. And don’t just focus on the number of bedrooms; size is a factor, as siblings may be able to share large bedrooms. Does the home have space that could be converted into bedrooms, such as an office or a large living room that could be partitioned?
- Bathrooms. Historically, two full bathrooms for a single-family home have been most common. But the rising trend in newer construction of American homes has been three or more bathrooms. From bathtubs versus stand-alone showers to dual sinks versus single ones, consider which bathroom features you will actually use.
- The kitchen. Kitchens are often the home’s gathering space, so consider if your potential new kitchen has room for your family and guests. Check out the appliances. If the refrigerator, oven, and dishwasher aren’t in good shape, you may have to consider replacement costs.
You’ll also want to look at what kind of outdoor space a home has — yards and gardens are important to some folks — as well as parking, energy efficiency, and more.
As you enter this home buying competition, you’ll have no better ally by your side than City Lending. Contact us today to talk about how we can help you navigate the red hot real estate market.
It’s a cycle most realtors know well. As winter loosens its frigid grip, the real estate market sees something of an awakening, with more and more buyers on the hunt for homes as the weather warms. And these buyers should be prepared to face tough competition. Let’s look at how we can get them ready for the springtime frenzy.
Pre-Approval Offers a Competitive Edge
What level of competition will we see among home buyers this spring? Substantial. Nationally, the housing inventory has fallen to levels we haven’t seen in over twenty years, with the supply of homes that are on the market on a steady decline. We can look at historically low interest rates as a big reason; buyers have been hot to get in on great mortgage deals and homes have been selling in record times, often mere days after getting listed. But the home-supply forecast isn’t as dire as some may fear; conventional wisdom among economists is that 2022 will come to an end with more inventory than we had when the year began.
Some of this inventory dearth is attributed to the natural patterns of the real estate market. As most realtors know, things are often slow during wintertime, with fewer sellers listing fewer homes, and things usually begin to pick up at the end of February. While the demand for homes will still exceed supply in the foreseeable future, we should see a bump in listings this spring, albeit in a seller’s market in which homes get snapped up fast. However it works out, the buyer with a mortgage pre-approval letter in hand has a clear advantage.
Why begin with pre-approval?
Lots of folks, especially first-timers, take a “testing the waters” approach to buying a house; they simply look around to see what homes are available, figuring they’ll take care of the financial details when they know what home they want. It’s an approach that almost guarantees that some other buyer will snap up that home. Especially in today’s fast-moving market. These buyers likely need guidance on the main benefits of a pre-approved mortgage.
- Pre-approval sets a budget. While a pre-approval letter doesn’t guarantee the eventual loan amount, it is a close approximation of how much someone can borrow if one’s financial situation and interest rates don’t change in the near future. That loan amount, plus what a buyer may have for a down payment, sets the highest price that a buyer can pay for a home.
- Pre-approval flags potential issues. In the mortgage pre-approval process, lenders look at basic financial information and almost always pull credit reports. If there are credit problems, they’ll show up here. Giving the potential borrower time to resolve these issues before they set their eyes on their dream home.
- Pre-approval helps with mortgage choices. Should one get a conventional mortgage loan? Would a VA Loan, or an FHA Loan be better? While borrowers don’t need to choose their mortgage type during the pre-approval process, pre-approval does offer insight into which mortgage is best for which homebuyer.
Won’t interest rates rise this spring?
Almost certainly. Anyone who has been paying attention to the public signaling from the Federal Reserve knows that interest rates are expected to rise this year, and springtime is when we’ll likely see the change. It was bound to happen sometime; the unprecedented low interest rates of the recent past were never seen as permanent.
This impending rise has prompted speculation that homebuyers are less likely to seek out mortgages at these higher rates. So how high will rates go and will this increase serve as a hindrance for homebuyers? The consensus among experts is that we’ll see rates go up between half and one percentage point throughout 2022. Which still makes mortgages attractive for the majority of homebuyers.
Don’t Make the Mistakes of 2021
Almost anyone who was looking to buy a home last spring had to deal with serious competition. Record-low interest rates and low inventory were the kindling that ignited bidding wars. And about two-thirds of Americans who intended to purchase homes in 2021 were ultimately unsuccessful buyers. We can chalk some of that up to a pandemic, but others failed through some common missteps.
Competitive offers are key. While the highest bid does stand the best chance of landing the sale, the right competitive offer often needs more. Mortgage pre-approval shows a seller that the buyer can pay the asking price. Armed with a pre-approval letter, a buyer can more easily suggest an expeditious closing, letting the seller set the accelerated timeline. Offering to purchase a house as-is (after an inspection) also ups the competitiveness of an offer.
A significant number of unsuccessful homebuyers in 2021 lay the blame on their inability to not qualify for mortgages. But was this true in every case? Chances are many of these would-be homeowners wrongly assumed that lenders would deny them loans based on financial situations. While credit histories can’t be improved overnight, focusing on some fundamentals will improve the chances of getting approved for a mortgage. Paying bills on time, working to lower debt, and saving for a down payment makes loan approvals more feasible for many.
Just as snow melts, greenery blooms, and wildlife awaken from long slumbers, spring welcomes a seasonal rise in home sales. And City Lending will be right there to help ensure these springtime purchases go smoothly.
Just as it is with two hearts, the coming together of a home and a home buyer can feel like a mystifying thing, a deep connection that can’t be reduced to sheer numbers and data. Having a plan before the home search begins can help you to know when you’ve met the right one. So here are some things for you to keep in mind.
Think Beyond Location and Price
The old saying that “location, location, location” is the number-one factor may be true. And price sure determines a lot. But a home’s features can be just as important as the neighborhood and the home’s price tag. So do a bit of soul searching and ask yourself how you want to live, what features and amenities are important to the way that you live your life. And write it all down. Armed with a list of exactly what you want your home to have will make the search for your perfect match go much easier.
Interior Features to Consider
The kitchen. For many, it is a home’s very heart, where folks tend to gather the most, the space where you welcome guests, and, of course, cook and share meals. Islands are popular features and ones that home shoppers often seek, as kitchen islands provide ample extra counter space above and storage space below. Dining bars also climb to the top of many lists; casual meals in the kitchen can be more common than sit-down dining at a table for those fortunate enough to have dining bars. Double sinks are quite popular. The features you want your kitchen to have depend on your lifestyle. Will you be doing a lot of cooking for a full family or do you have more moderate kitchen needs?
Appliances are big considerations, as they can be costly to replace, especially if they are built-ins as opposed to freestanding. Lots of people look for stainless steel. You can eyeball the ages and conditions of a home’s appliances and later confirm with the home’s inspection. This is true not only of the kitchen appliances but also includes washers, dryers, furnaces, air conditioners, water heaters, and more.
Some common interior areas to consider are dining areas such as breakfast nooks and full dining rooms, as well as the number of bedrooms, with a focus on what you want in a master suite; sitting areas, balconies or patios, and walk-in closets are just a few of the enviable features of a fine master suite. Plus consider the number of bathrooms you want and the features you want them to have. Your dream bathroom might include a jetted tub, dual sinks, a heated floor, and natural light from a skylight.
Exterior Features to Consider
Often given only slight consideration with home buyers, lot size can be more important than many realize. How much privacy does your outdoor living space afford? What will you use it for? It’s a good idea to think of your lot in terms of expansion, say, building a shed or a garage, or adding an extra room onto the home. If you have any of these exterior expansion plans in mind, it’s a good idea to check out the local laws and codes that apply.
A front yard is your home’s presentation space, what the world sees and what those entering experience as a first impression. Backyards are more personal spaces, used for leisure time and housework and so should fit with your lifestyle. While some may say bigger is better with outdoor space, keep in mind that the more ground you have, the more you’ll have to maintain. The prospect of yard work might make you rethink lot size.
Keep Energy in Mind
Do you want to cook on a gas stove? Does the home have solar panels? If not, what are the zoning requirements and are there good places to add panels? You’ll want to look at the windows; double and triple-pane windows can significantly reduce your heating and cooling costs. For conserving water, keep an eye out for single-flush toilets and tankless water heaters. If there aren’t a lot of ceiling fans, consider that eight to nine feet above the floor is the optimal position for installing a ceiling fan.
Avoid These Common House Hunting Mistakes
- Don’t look at homes beyond your price range; lust for a house that’s out of your league is a common house hunting mistake that could lead to heartbreak.
- Don’t skip over mortgage pre-approval. Having a pre-approved loan in place makes house hunting much smoother.
- Don’t fall for the first home that catches your eye. Shop around for that perfect match.
- Don’t go it alone — have a broker or a real estate agent with you when you speak with a seller’s agent.
- Don’t insist on perfection. If you love a home overall, you can live with some small imperfections that you can change later.
- Don’t overlook big problems. A fixer-upper might seem feasible, but you never want to take on more home-improvement work than you can handle.
- Don’t skip an inspection. Even if you have a conventional mortgage loan that doesn’t require an inspection, it’s still a good idea to get one.
- Don’t give in to desperation. Just like meeting life partners, finding the perfect home can be a long and bumpy road. Home shopping often takes four months or longer. Patience will pay off.
- Don’t jump to make an offer. It might be love at first sight, but best to sleep on it, and do some research such as checking out the neighborhood.
- Don’t dawdle. While you don’t want to leap before looking, you also don’t have the luxury of time in today’s red-hot real estate market. So do your due diligence as soon as you find the home you want and then act. If not, someone else will surely snag your dream home.
And when you do finally meet up with that house you know is right for you, City Lending will be there for all your mortgage needs to ensure that you live happily ever after in your perfect home.
Your credit score plays a big role in your mortgage eligibility. And understanding this is often the key to getting your dream home. Here’s what a credit score is and why it matters when you’re looking to buy a house.
First, what is good credit? From the perspective of your lender, good credit means a history of using the credit you’ve been given in the past with care and paying back previous loans according to their terms. With these positive credit behavior patterns, you are more likely to get approved for a mortgage at a low interest rate with favorable terms.
Credit Reports and Credit Scores Are Not the Same Thing
A credit score is a number that’s assigned to you as an estimation of your worthiness to get credit. A credit report is a detailed look at your credit history. Let’s drill down a bit on each.
- Your credit report shows how much money you have borrowed, how you’ve paid it back, and how much credit that you have available to you. The report includes debts such as student loans, auto loans, and credit cards, among others. Credit reports also show any red flags, such as referrals to collection agencies, long-overdue bills, bankruptcies, and tax liens. You have a right to receive your credit report; federal law requires each of the nation’s big three credit reporting companies to give you a free copy of yours. You should check out your credit report before applying for a mortgage.
- Your credit score is a number between 300 and 850, determined by a number of factors related to how you’ve managed credit in the past, including the type of credit that’s been extended to you and for how long. The most commonly used credit score is the FICO score, created by a data analytics company previously named the Fair Isaac Corporation, now simply FICO.
Factors That Determine Credit Scores
- Payment history is a big factor in determining a credit score. About one-third of the calculation that sets your credit score relies on how you’ve made payments on your bills. Consistent on-time bill paying gets you good marks, late and partial payments will result in negative marks.
- Balance ratios rank a close second. Known in the finance world as a credit utilization ratio, this split between the debts you owe and the amount of credit you have available is hugely important in determining your credit score. Keeping this number under 30% has a positive impact.
- Credit timelines come in third. Got an old credit account you rarely use? Don’t close it! The longer you’ve had a credit account, the better this longevity contributes to your credit score. Conversely, closing longtime accounts could lower your score.
- Your credit mix is also considered. Lenders like to see diversity with credit, giving credence to the fact that you can handle a variety of credit situations. Open credit, revolving credit, installment credit — it all comes together to paint a good credit picture.
- Recent credit activity plays a part. The flip-side of credit longevity, a flurry of recent credit activity doesn’t bode well for a credit score. While not as significant a factor as payment history or balances owed, applying for multiple credit accounts over a short, recent period can put a dent in your credit score.
What credit score do I need to get a mortgage?
This is often the biggest question people ask before they apply for a mortgage loan and the one that weighs the heaviest in their minds as they await approval. While this varies from lender to lender and other factors may influence the results, a credit score of 620 is generally considered the floor for getting approved for a conventional mortgage. A score of 740 or higher is often considered the range to get the best possible terms and best interest rate on a conventional mortgage.
Can you still get a mortgage if your credit score is in the 500s? Yes. Though if your credit score falls below 620, your best bet is usually to apply for an FHA Loan mortgage, as government-backed loans often have lower credit-score thresholds — with higher down payment requirements based on your credit score. If you have a score of 580 or higher, you may be able to get an FHA loan with only 3.5% down. With a score in the 500 to 579 range, you’re probably looking at a 10% down payment to secure an FHA mortgage.
Specifically designed for veterans and active-duty members of the military, VA Loans are similar to FHA Loans in that they are guaranteed by the government, backed by the Department of Veterans Affairs. The credit-score requirements tend to skew slightly higher for VA Loans over FHA Loans; 600 to 640 is a common range for getting approved for a VA Loan, which often has the advantages of 100% financing with no down payment and no requirement for mortgage insurance.
How can I improve my credit score?
While there is no quick fix, there are steps you can take to improve your credit score. If you have long-standing debts, such as student loans, paying them down will help. All the better if you can close out the debt. But don’t close out paid-up credit cards; best to keep these open as longer-term lines of credit positively affect credit scores. If you can’t completely pay down a credit card, making more than the minimum monthly payments will help.
What if my credit score is still too low to get a mortgage?
Whether it’s due to no credit or bad credit, this is an issue many would-be borrowers face. For many, having a co-signer who does have a good credit score is the answer. Another option is to have another person, a family member or a significant other, buy the home and put your name on the title. When your credit score improves, you can then apply to refinance to have the mortgage in your name.
A good credit score can change your life, handing you the keys to the home you desire. And when you’re ready to embrace that change, lenders at City Lending are ready to serve.
Thinking about buying a new home or refinancing? Call today to get pre-approved.
If you’re thinking about buying a new home, your first instinct may be to just get online and start scrolling through real estate listings. But there are a few things you might consider doing before the search starts.
Determine Your Budget
How much can you afford to spend on your new home? It’s a question most folks must ask themselves even before they begin the search to buy a house. To start, you should take a close look at your spending behavior and determine just what you spend each month. On everything from buying food and eating out to transportation, utilities, and all of your monthly bills. Then figure out the amount a monthly mortgage payment can comfortably fit in with these spending habits.
As a rule of thumb, the Federal Housing Administration recommends that your housing payment should be less than 31% of your gross monthly income. Beyond your mortgage payment, this includes property taxes, and in some cases homeowner’s insurance and mortgage insurance. If you don’t have any other debts, you may consider going up to 40% of your gross income toward home payments when you are buying a home, though it’s unwise to take your debt-to-income ratio past 43%.
Get a Preapproved Mortgage
Why would you want the preapproval of a mortgage loan? Peace of mind is a big reason, knowing that your mortgage will be nearly in place when you find that perfect home. Plus, sellers usually like buyers with pre-approved mortgages, offering proof that the buyer is serious and allaying fears that the deal could fall apart with the denial of a mortgage loan. In today’s red-hot real estate market, where bidding wars are common, the buyer with a preapproval letter in hand has the competitive edge.
Just as you would with a mortgage loan, seeking preapproval from a lender means getting a clear picture of your finances. You’ll want to get a copy of your credit report, showing both your credit score and your history of handling debt and credit accounts. And get your financial info in order, such as proof of income, tax filings, documents for any investment accounts, and employment information — these will likely be needed for the preapproval or when it comes time to apply for the home loan.
Is there any difference between preapproval and prequalification?
Yes, while they both aim toward the same goal — making you a better buyer — there are key differences between the two. You might think of prequalification as dipping your toes into the waters of home buying. Those seeking prequalification likely aren’t certain if their finances make them well-positioned to buy a home and so seek a less formal evaluation from a lender. A prospective borrower will disclose their financial information to a lender and the lender will give an estimation of the amount they may ultimately lend. Lenders generally don’t look at credit reports or do deep dives into one’s finances for these estimates, which are designed to give potential homeowners a general sense of the homes they can afford.
If pre-qualification is toe-dipping, mortgage preapproval is fully wading into the waters; those seeking preapproval are usually ready to buy a home and have their finances in order to do so. During the preapproval process, a lender will pull a credit report, look at debts and assets, and verify income as part of an evaluation of the potential borrower’s worthiness to get credit. Lenders will calculate your debt-to-income ratio and the loan-to-value ratio in deciding the amount and rate of the loan. That does not 100% guarantee you’ll get that loan; final approval still hinges on a home appraisal and no changes in your financial situation. But with a preapproval letter, which is often valid for 60 to 90 days, you can have some degree of confidence the loan you’ve been approved for is the loan you’ll get.
Find a Good Real Estate Agent
This is a tough one — there are lots of real estate agents out there! Here are some tips from experts on finding the right real estate agent for you.
- Talk with at least three real estate agents before choosing one, and best if that one is local with expertise in the neighborhood you’d like to live in. The more local, the better. Think of these chats as job interviews — because they are!
- Personal referrals are preferred. While the internet is great, and online reviews and star ratings can be a help, they still don’t trump a person-to-person recommendation from a homeowner who has worked with the agent in the past.
- Find a realist. Like most investments, buying a new home comes with a certain level of risk and you want an agent who is clear-eyed and honest about those risks to help mitigate them. Flash and flattery are not what you need, but rather a realist who will offer no-nonsense analysis of your potential investment.
- Trust your gut. Best to get both sides of the brain working as you select the agent that’s right for you. Left-brain logic will look at the agent’s credentials and track record, while right-brain emotion will give you the feeling of whether this agent is your best choice or not.
Make a Comprehensive Wish List
The last thing you want after closing on your new home is buyer’s remorse. So it’s a good idea to lay out exactly what you want before you start shopping with a home buying wish list. And it could be a long list, but well worth the effort. Your list may help you answer questions like: Do you need to be near public transportation? Do you want a yard and if so, what size? How many bathrooms do you want? And on and on. Making a detailed list will make the shopping stage much easier.
How long will you be shopping for a home?
That, of course, varies, and factors that influence your shopping time may include the time of year and the availability of homes that are currently for sale. A common timeline to buy a house can be four months or more, though the National Association of Realtors found that homebuyers shopped for an average of eight weeks, typically touring nine homes. And then it often takes between 30 and 45 days to handle the closing details. So from the first credit check to that day you have the keys in your hand, it could take as long as six months.
No matter how long it takes, ultimately you will call that new house home. And with City Lending, you’ll have a trusted partner with you along each step of the way.
Knowing the right time to buy a home can be difficult, now made even trickier by a pandemic and ever-changing housing market conditions. But the short answer is, Yes, 2022 is a fine time. Let’s delve into some of the reasons why 2022 is an optimal year for homebuyers.
Home Buyers Benefit from Price Normalization
A majority of housing experts predict that the surge in home prices and the unprecedented bidding wars we’ve seen in recent times will see some cooling, with price growth easing back to numbers that have been the historical norms. Fannie Mae and Freddie Mac each offer somewhat similar forecasts, predicting that we’ll see respective 7.9% and 7% growths in US home prices in 2022. That’s admittedly still higher than norms we’ve known historically, but a welcome relief for would-be homebuyers who have seen home prices skyrocket since the advent of the coronavirus.
Other experts think things look even rosier for homebuyers; CoreLogic and Redefin have released predictive models showing that they forecast price growth over the next year to be at respective 1.9% and 3%. Most industry insiders expect to see this tamping down of home-price rises as a direct result of the inevitable rise in mortgage rates. Nobody expected the unprecedented low mortgage rates of the recent past to go on forever, and signs that inflation and the Fed will each have their say concerning mortgage rates have been impossible to dismiss.
While there is some consensus among experts about the kind of housing market we’re going to see in 2022, housing market forecasters are by no means in agreement on everything. Contrary to Fannie Mae and Freddie Mac, the Mortgage Bankers Association doesn’t think we’ll see an increase in home prices in 2022 at all; they’re forecasting a decrease of 2.5% in the median price of homes. The reason? They’re not so sunny on mortgage rates, which they say may climb to 4% as 2022 draws to a close. While that prediction may jar the jaws of some, we would do well to look back and remember the lowest available mortgage rates of 2006 (6.10%) and 2000 (7.13%) — and north of 18% in 1981! By comparison, 2022 looks pretty good even through the cloudiest of forecast lenses.
Where are mortgage rates headed?
This is some positive news for potential homebuyers. While we may not be looking at the stunningly low mortgage rates of 2021, the rise in 2022 looks moderate. Fannie Mae predicts that the rate of 3.1% we saw as we approached 2022 will rise to 3.4%. Redfin foresees a slightly higher uptick, forecasting we’ll get mortgage rates at 3.6% in 2022. Naysayers will point out that even a rise of .5% will have an impact on a 30-year mortgage. And they’re right. Borrowing, for example, $500,000 at a rate that’s half a percentage point higher could add about $140 to monthly payments. And that adds up over the 30 years. But this increase is offset by the cooling in the rise of the prices of homes, still leaving homebuyers in a fairly good position.
And it’s important to consider that the housing mortgage market doesn’t exist in a vacuum; rising interest rates, even the moderate ones we expect in 2022, almost always correlate with wage increases. So while monthly payments may see a slight rise, so, in tandem, will the earnings of the average homebuyer.
More Homes Means More Choices
Realtor.com’s chief economist Danielle Hale believes, despite supply chain issues tied to the pandemic, we’re going to see a moderate rise in housing inventory with single-family starts going up by around 5% throughout 2022. The National Association of Home Builders echoes this forecast, citing high single-family builder confidence. While the NAHB doesn’t foresee an eye-popping surge over 2021 numbers, they do expect housing starts to rise in 2022, and predict that this rise will be significant compared to pre-Covid 2019 figures: 25% higher. How many new homes? Susan Wachter of the Wharton School of the University of Pennsylvania thinks we’ll see more than one million single-family starts in 2022.
It’s also a good time to consider buying a condo, as single-family homes aren’t the only area where we’re poised to have an increase in construction. Multifamily units will also see an expansion. According to U.S. Census data, at the start of the Fourth Quarter of 2021, permits for the construction of 1.5 million housing units had been approved for the year. Barring any unforeseen setbacks, many of these units will be constructed in 2022.
However, a rise in construction starts isn’t the only reason we’re expected to see an uptick in homes on the market in 2022; foreclosures are on track to rise. No experts are forecasting that we’ll have widespread foreclosures of the unprecedented kind we saw in 2008, but conventional wisdom says a jump in auctions and foreclosure sales are on the immediate horizon. We can look to the pandemic as the reason, hitting homeowners who were already having difficulty making mortgage payments with even more financial stress.
Power Shifts from Sellers to Buyers
Many aspects of our lives took roller coaster rides in 2021, and the real estate market was no exception. Home values jumped at whopping rates, almost 20%. Most experts agree that these leaps will likely settle in 2022 and that we’ll be looking at more reasonable increases of around half the 2021 rates going forward. Realtor.com predicts that in 2022 we’ll see a 12% appreciation in home value, with a rise of 2.9% in median home prices.
This slow in growth rates shifts the power balance somewhat from home sellers to buyers, offering more bargaining power to the latter. So we’ll almost surely see fewer bidding wars and a tempering of the fever pitch we had with competition for homes in 2021. All-cash was king over the past year; sellers had their choice of multiple hungry buyers and leaned toward all-cash deals. But as that fierce competition inevitably wanes, buyers with conventional mortgage loans will find themselves better positioned to get their dream homes.
Ultimately, you’ll have to decide for yourself if 2022 will be the year to make your move. And when you do, the folks at City Lending will be right there by your side to help you begin a new phase of your life in a new home.