There is plenty to be thankful for in the Twin Cities housing market
As we near ever closer to Thanksgiving and the holiday season, there is plenty to be thankful for in the Twin Cities real estate market for buyers and sellers alike.
The median sales price was $209,000 in October, up 7.2 percent from last year, according to data from the Minneapolis Area Association of REALTORS®. October marked 32 consecutive months of year-over-year sales price increases.
While overall new listings were down 2.3 percent from last October, traditional home sellers (who are selling homes that are not in short sale or foreclosure) celebrated higher prices and higher market confidence by putting 6.7 percent more new listings on the market. New listings of foreclosure and short sale properties were down 42.2 percent and 31.3 percent, respectively.
Homes are still selling quickly. The average number of days on the market for traditional listings in October was 66 - up slightly from 65 days last year, but down 27.4 percent from October 2012, when the average days on market was 91.
Buyers are thankful for an almost 18 percent increase in traditional listing inventory. This increase gives buyers more to choose from and helps relieve some of the competitive pressure that was felt during the recent seller’s market.
Buyers are also still benefitting from very low mortgage rates and a strengthening job market. According to the Bureau of Labor Statistics, the 3.6 percent unemployment rate in the Twin Cities is the lowest of major metro areas across the country.
While the pace of growth has cooled from the red-hot market increases of 2013, the market still shows signs of steady strengthening. Continued economic recovery and job growth should keep the market moving forward on the right track.
What you need to secure a home mortgage loan as a first-time homebuyer
During the buyers’ market that ended more than two years ago, numerous real estate investors swooped in to purchase low-priced homes, many of which were foreclosures and short sales. First time homebuyers and other traditional buyers were, in many cases, locked out of the market by these investors, who were outbidding them, and often paying with cash rather than financing.
Now, as home prices rise and foreclosures and short sales dwindle, the investors are exiting the market. What does all this mean for first-time homebuyers who have their eye on single-family homes? With fewer investors, and lenders slowly loosening their standards, the competition for a single family home is finally becoming an even playing field. Below, we walk you through why it’s the best time in years to be a first-time homebuyer in Minnesota and western Wisconsin.
1. Down payment minimum of 3.5 percent for FHA loans
FHA loans, which are backed by the Federal Housing Administration, are the most common government-backed loans. Lenders who want FHA protection must make sure that their loans meet FHA lending standards.
FHA loan standards require a buyer to have a minimum of 3.5 percent down at closing. A relative may also gift the 3.5 percent down payment. With such a low amount required down, FHA loans are considered riskier to lenders than conventional loans. To protect against borrowers defaulting on their mortgages, lenders require buyers to purchase mortgage insurance when they secure an FHA loan.
2. Minimum credit score for FHA loans
Most lenders require a credit score of 640 or higher to secure a loan, though exceptions are occasionally made for scores higher than 580. It’s a common concern that lenders will begin offering mortgages to borrowers who should not be approved. Keep in mind: the FHA states that they will buy loans for borrowers who have a credit score higher than 500. But major lenders, who underwrite the loans, have requirements that are often stricter than FHA standards. These requirements are called “investor overlays,” and can include everything from checking buyer credit scores to verifying income.
Much like mortgage insurance, the investor overlay provides additional safeguards for lenders who want to protect against buyers defaulting on their mortgage payments. By checking for signals like a growing income or other financial security factors, lenders can confidently lend to first time buyers who may still be working to improve their credit score.
3. Loan limits for FHA and conventional loans
Both conventional loans and FHA loans have maximums, or limits, to what can be borrowed. Why? In the case of FHA loans, they are considered “helper” loans for buyers who don’t have a 20 percent down payment but can afford monthly mortgage payments of a certain amount.
FHA loan limits vary from county to county. In the Twin Cities metro area, including Anoka, Carver, Dakota, Hennepin and Ramsey counties, the current loan limit on single-family homes is $318,550. Meanwhile, the FHA loan limit for single family homes in most non-metro counties in Minnesota is $271,050. You can double check your county’s loan limit for Minnesota and Wisconsin on the FHA website.
Remember, the FHA loan limit is for the total amount of the loan, not the total price of the home. So if you’re eyeing a gorgeous home in Fridley with a price tag of $320,000 and you have a 4 percent down payment saved ($12,800 in this case), you would apply for an FHA loan of the remaining amount, $307,200.
4. How to get started
The best thing you can do as a first-time homebuyer is to get pre-approved for a mortgage. Together with your home mortgage consultant, we’ll complete the mortgage application process, and you’ll supply your full financial history. In return, the lender will provide an estimate of the loan amount they would approve and what interest rate you can expect should rates hold. Buyers with pre-approval are also looked on favorably by many sellers, so it’s a great tool to have in your arsenal as you head into our competitive, low-inventory market.
From the contract to the closing table
Everything you need to know about the final steps to buying a home
Wondering just what it takes to get from the accepted offer to the closing table? Below, we walk you through all the steps faced by homebuyers in Minnesota and western Wisconsin.
Did you know that Edina Realty can handle your entire transaction process – from the contract to the closing table? You can rely on our family of services including: Edina Realty, Edina Realty Mortgage, Edina Realty Title, Edina Realty Warranties and Edina Realty Insurance to provide convenience and competitive pricing.
1. Mortgage loan application and title commitment
After we negotiate the offer, you will apply for a home loan in an amount equal to or less than the amount for which you were pre-approved. Next, you’ll prepare your personal documents and provide them to your Home Mortgage Consultant which will help verify your employment history, creditworthiness, and complete financial situation. Your assigned loan processor will contact you to discuss your loan application process. When you apply for the loan, a notification is sent to the seller’s agent, and they’ll monitor the loan approval process for their client. At this time, the title commitment is also ordered.
2. Home inspection and due diligence
Next, the home will be inspected fully by a licensed inspector that you, the buyer, choose and pay for. When we receive the inspection report back, we’ll question the seller about any concerns about the property and request needed repairs. At this time, you also have the right to terminate the purchase agreement (contract) for any reason.
3. Schedule closing date
It’s now time to engage your title company. Consider working with Edina Realty Title who can schedule the closing date and time, notify all parties, and prepare and review the title commitment so it’s ready for closing.
4. Appraisal and loan approval
Next, your lender will have the property appraised, so they can be sure that the home’s value is high enough to justify the loan. Once the appraisal is reviewed and approved, your financial and credit information has been verified, and all conditions have been cleared, your lender will approve your home loan. The loan package is submitted to the title company, which prepares the closing documents and provides the buyer with the final settlement costs.
5. Homeowner's insurance
The lender requires homeowner’s insurance to be purchased. You have the option utilizing Edina Realty Insurance at this time. The seller’s agent will ensure that the coverage will satisfy the lender’s requirements. It’s important that the policy be finalized and available at the closing.
6. Reinspection, if necessary
If the due diligence negotiations required the seller to make repairs, then you should have the property inspected again to ensure that the repairs were completed in full.
7.Transfer of utilities
Before closing, the utilities should be transferred to you from the seller. The seller should notify the utility companies to cancel their coverage on the day of closing, and you should set up coverage from closing day and beyond.
8. Closing time
During closing, your title company will explain and notarize all documents, disburse funds and submit the deed to the county for recording. You’ll want to bring the following items to the closing:
- A valid photo ID
- Social security number
- Wired funds for the amount specified in the most recent good faith estimate you received from your loan officer or lender
- A checkbook, in case of other charges
- New homeowner’s/hazard insurance binder and paid receipt
Following your closing, the final title insurance policy will be issued.
The ultimate holiday lights safety checklist
It’s the time of year where you feel the need to channel your inner Clark Griswold. We understand your grand ambitions, and we want you to succeed with a light show that (figuratively) blows the neighbors away.
Whether you’re planning an inside job or the greatest exterior light show your neighborhood has ever seen, here are the top safety tips you should keep in mind as light your home for the holidays.
✓ If you’re purchasing a tree, consider getting a fresh one — they are less likely to catch fire than artificial trees.
✓ Before you set up any interior lighting or flammable decorations, check your smoke alarms to make sure they are in working order.
✓ Check last year’s light strings to make sure they aren’t frayed. If you replace any of the bulbs, check to make sure the wattage and voltage matches the original strand.
✓ Some lights are only certified for interior use, so be sure to check your exterior lights before hanging them.
✓ If you’re using a ladder to put up your lights, make sure someone is standing at the base to secure it. Abide by the guidelines on the ladder that say “Do not go past this point” on either the second or third to top rung.
✓ When mounting lights to a tree or home exterior, be sure you do so using hooks or heavy-duty tape. Don’t use nails or tacks to secure your holiday lighting. Also, be sure to keep any electrical connectors off the ground and away from metal gutters.
✓ Don’t connect multiple extension cords together. Buy a longer cord, or find a way to light the house using a few smaller cords that won’t overload your outlets.
✓ Avoid a fire hazard by turning your exterior holiday lights off at night or when you leave the house. The best option is to buy an automatic timer that turns them off even if you forget.
✓ If you have young kids or pets in the house, consider blocking off your tree area when the room isn’t in use.
Feeling like it’s a good year to be a spectator?
You don’t have to spend hours on holiday lights to enjoy them! Consider going on a holiday lights tour instead. You can plan your own or book one in advance.
This 2.5 hour motor coach tour is both affordable and award-winning. If you’re hoping for a more exclusive experience, Renee’s Royal Valet Limousines was voted the top holiday lights tour for small groups — and they offer a few different options, including a trip to the Woodland Hills Winery in Delano, Minnesota.
All in all, the holidays are a wonderful time to spend with family and friends. By taking a few precautions, you can make sure they’re also safe for everyone to enjoy!
Minneapolis-St. Paul leads the nation in home affordability
After finishing second in 2013, the Twin Cities has been ranked the most affordable city in the country for home ownership, according to Interest.com. The site analyzed the 25 largest US metros to see how their median household incomes compared to the area’s median priced homes.
As reported in the Star Tribune, Minneapolis-St. Paul’s median household income is $67,000 – almost $15,000 higher than the national median income. By their math, Interest.com determined that the median income of Twin Cities residents is 23 percent greater than the wage requirements for buying a median priced home in our area, which was cited at $213,000. Homeowner’s insurance rates and median property taxes were also taken into account when giving our market the top ranking.
We love being number one, but it’s important to see what high home affordability could mean for today’s buyers.
Rising inventory means more to choose from
As shown in the November Market Update, the 13-county metro area saw an 18 percent year-over-year increase in traditional inventory in October. Meanwhile, pending sales slipped slightly, down 1 percent from last year. Both of these are signs that the market is still moving away from a sellers’ market and into a balanced market that allows for both buyers and sellers to benefit.
Mortgage rates remain low for buyers
Defying expert predictions, mortgage rates are still low heading into the holidays. Nothing is more important – or more fickle – than a rising loan rate when buying a home. Here’s why locking in a low interest rate is so important: If a buyer with a 20 percent down payment is approved at 4 percent on a 30-year fixed conforming loan, for a $350,000 house in Apple Valley, their monthly mortgage payment would be around $1,500.
Meanwhile, if that buyer’s loan interest rate increased just .5 percent, the monthly mortgage payment would be a little over $1,700. That’s an additional $2,400 annually, and a difference of $72,000 over the 30-year life of the loan.
Your lender will give you your estimated interest rate (assuming rates hold) and your estimated loan amount during the pre-approval process. Just remember – the lower your interest rate, the more home you can afford.
A strong local economy gives an extra boost
It’s not just a high median household income that makes the Twin Cities stand out. Our strong local economy also boasts an unemployment rate of 3.6 percent, which is the lowest in the country according to the Bureau of Labor Statistics. Job security and a strong employment portfolio go a long way when applying for a loan in today’s market.
If you’re thinking about buying a home, consider starting the process now. Buying a home at this time of year means less buyer competition and you’ll take advantage of today’s low interest rates. Go ahead – reach out today to get started on buying a home in the most affordable housing market in the country.