Think you can’t afford to buy a home? Think again
For many would-be buyers, the last decade has made The American Dream just that—a dream. But with today’s low interest rates, new down payment options and rapidly rising rental costs, homeownership is fast becoming a budget-friendly option once again. Below, we outline how today’s changing market means it’s time for Generation Y to enter the market at last.
Renting is now twice as expensive as buying
First, we let’s talk about the rising cost of rent. According to this recent study, homeowners across the country spend about 15 percent of their total income on their monthly house payment—not including insurance and taxes. Meanwhile, renters across the country pay 30 percent of their total income on monthly rent. That means that, on average, renters pay two times more to live in a property that doesn’t offer them any long-term financial security.
Saving for a down payment can take less than a year
Of course, as rent becomes more expensive, many would-be buyers find it difficult to put money away for a future down payment. If you’re a frustrated renter who thinks buying is far off, know that 69 percent of first-time buyers were able to save for a down payment in less than 18 months and 50 percent of buyers said they did so in less than one year.
Many would-be buyers state that they cannot cut anything out of their already tight budgets. To start saving, think of the niceties you allow yourself—everything from eating at restaurants to buying expensive coffees, to electronics purchases and annual vacations. These are the kinds of elective activities and purchases you should put a cap on as you save for a down payment. By creating a new, stricter budget, even the most challenged saver can find new ways to put money away each month.
New down payment options as low as 3 percent
Many would-be buyers have been frozen out of the market due to the difficulty of saving for a down payment, but new loan options may make it easier for this faction to purchase a home soon. Fannie Mae and Freddie Mac just announced that they will approve mortgages with down payments as low as 3 percent, provided the borrower has a credit score of 620 or higher, can offer full financial and income documentation and receives homeownership counseling.
The mortgage giants have stated that these loans are specifically meant for first-time buyers who can pay a monthly mortgage but have not had the time and means to save a large lump sum for a down payment. This is music to the ears of many young renters, who find that they are paying much more in rent than they would in monthly mortgage costs.
Meanwhile, government-backed loans are also becoming more accessible and affordable for first-time buyers. The Federal Housing Administration, which backs FHA loans, requires a 3.5 percent down payment, and they recently reduced annual mortgage insurance premiums from 1.35 percent to .85 percent. This reduction will lead to a savings of about $80 per month for the average FHA borrower.
Starter homes are smaller homes
Just ten years ago, we saw the rise of the “McMansion” across the suburbs, but today’s first-time buyers have more modest taste. A study from the National Association of Home Builders shows that buyers under the age of 33 are purchasing smaller, older and less expensive homes. In fact, 69 percent of homes purchased by millennials were less than 2,000 square feet. Eighty percent spent less than $250,000 on their home, while 50 percent spent less than $148,500.
Even as home prices have risen over the last few years, it’s still possible for younger buyers to find smaller homes that meet their needs. Plus, while the early 2000s were all about competing over the largest home, the reset of the market correction has made homeowners more conscious of space, price and finding the right fit for their family rather than competing for the biggest castle.
Low interest rates are expected to rise gradually this year
Low rates are critical for first-time buyers, as an increase of even 1 percent can greatly affect a buyer’s purchasing power in the long-term.
For example, if a homebuyer with a 10 percent down payment is approved at 4 percent on a 30-year fixed conforming loan for a $200,000 house in Fridley, MN, their monthly mortgage payment would be $860. If the interest rate increased to just 4.5 percent, their monthly mortgage payment would increase to $1,120. That’s a difference of $1,200 annually and $38,000 over the life of the loan.
As you can see, the easiest way to increase your buying power is to purchase with a low interest rate. These rates have been kept intentionally low for the last few years in an attempt to drive buyers back into the market. As we stated in our 2015 predictions, we believe that these rates will continue to stay low, with a potential uptick later in the year (to around 5 percent).
The best time for you
With rent rising and market conditions becoming more favorable for younger buyers, it’s true that this is an ideal time to buy for many first-time buyers. Still, it’s important to work with a local specialist and home mortgage consultant who understand your personal finances, lifestyle and budget. Reach out today and together we canReach out today and together we can determine if it’s the right time for you to buy a home.
How to apply for a home mortgage loan
Planning to secure a home mortgage loan? Below are steps to help you apply for a home loan.
To get ready to apply, have your financial information on hand. Your lender will need proof of income, tax returns, and all pages of your asset statements, including your bank accounts, 401k and investments.
Start the process
It’s easy to start the financing process. Begin by contacting a home mortgage consultant by phone or email. He or she will help you complete and submit your application.
Within three days you will receive two documents in the mail:
- Good Faith Estimate - This document reflects a preliminary itemized list of fees and costs associated with the loan, i.e., property taxes, homeowner’s insurance, and pre-paid interest.
- Truth in Lending Disclosure - These disclosures contain important terms of credit which include the annual percentage rate (APR), term of the loan and total costs to borrower.
You will review, sign and return the documents. Keep in mind that the sooner you return your required documents, the sooner your lender can process your loan application.
Your mortgage consultant will submit your application for review and verification. Next, underwriting will verify your employment, income, and financial information. The appraisal will be ordered to determine your property value along with other services such as title insurance.
Prep for closing
Once your loan is approved and you are ready to close, confirm a closing date with your agent. Prior to closing, your closing agent will provide your final closing figures so you can obtain a cashier’s check for your closing costs and down payment.
Finally, the lender will send the closing document to your closing agent. At closing, review the documents with your agent, then sign and date them.
Congratulations on your new home! Collect your keys and move in.
To learn more about home financing options and ways to achieve your home financing goals, contact Edina Realty Mortgage today.
Then and now: How buying a home has changed in the digital age
When you think of buying a home, you may still have images of how the process worked in the past: piles of paperwork and red tape, a variety of service providers that didn’t work together. But as we’ve all become more connected, so too has the process of becoming a homeowner. Here, we outline all the ways that modern technology allows you to save time, money and paper as you buy a new home.
A more collaborative search -- from anywhere, any time
Then: Real estate agents received books of listings from the Multiple Listing Service (MLS) every two weeks, and agents and their clients had to pore through to find the homes that met their criteria. In markets with high turnover, the books were quickly out of date and agents found themselves unable to provide the best service for their eager clients.
Now: The birth of the Internet has made searching for homes a task that can be done from anywhere, at any time. Plus, Edina Realty’s home search for desktop and mobile devices is updated with the latest listing data, to protect you from falling in love with a house that’s about to be sold.
But it’s not just where and when you can search for homes that has changed—it’s how. New online features allow us to collaborate on edinarealty.com and our mobile app to set up showings, or to share favorite listings with friends and family. From within each property page, you can also determine the estimated monthly mortgage payment of a home so you can stay within your assumed budget.
A new era of partnership
Then: Many different partners are needed to finalize a home purchase. In the past, a buyer’s agent would often work with separate lending companies, title companies, and would secure homeowner’s insurance and a home warranty from different partners.
Now: As the world becomes more connected, it only makes sense that real estate partners and systems should be connected, too. Edina Realty Home Services offers brokerage, mortgage, title, homeowner’s insurance and home warranty services all under one roof, making the process easier for homebuyers. In a transaction where the buyer uses both Edina Realty Mortgage and Edina Realty Title, the mortgage closing department will submit an approved loan package to the title division, which prepares the closing documents and gives the buyer their final purchase cost. When a lender requires the purchase of homeowner’s insurance, Edina Realty Insurance offers the best policy and a streamlined system for purchasing and signing in advance of closing. When buyers want to protect their new investment against general wear and tear, they can work with Edina Realty Home Warranty.
A focus on security and privacy through online forms
Then: Buyers had to sign hundreds of pages of documents, and everything from the mortgage application to the preparation of the closing documents was sent via snail mail or fax. This process was time-consuming and subject to human error (boxes or signature lines could easily be missed). Additionally, title companies and lenders were at the mercy and security of the mail or fax services they used, making it difficult to guarantee the safe transit of the documents and personal information.
Now: The first step to closing on your home is to prepare the initial closing documents, which include personal information, details of your future property and contact information. To best protect against any security breach, Edina Realty Title uses a proprietary system, Secure Home Forms™, to transfer this information through a secure server. Additionally, Edina Realty Title recommends a bank wire (rather than a live check) as the method of payment for any funds required at closing. Buyers can request that the transfer be for the amount specified in the most recent Good Faith Estimate from their loan officer or lender.
Not all of the real estate industry has adapted to include modern-day secure document transfer, but Edina Realty Title is leading the charge for the title industry.
A focus on the buyer
The Internet has brought new standards of communication and convenience, but it’s also brought back focus to the user.
Similarly, our goal is to offer you, the homebuyer, an experience that reflects your personal preferences—whether it’s texting with us to set up a showing, signing closing documents on the Light Rail train after work or simply sharing a listing with your friends and family.
The five best reasons to downsize your home
According to the National Association of REALTORS® (NAR), nearly 70 percent of homeowners over the age of 65 have paid off their mortgage, allowing them more options than younger homeowners. With equity built up, the ability to sell for a profit is more likely for this demographic, who can then choose to spend their earnings however they choose. Here are five reasons you should consider downsizing your home this year.
Buy a smaller home with cash
Some homeowners will find that by downsizing, they can earn enough to buy a less expensive home in cash, and end up mortgage-free in a new abode. NAR says this is a very common route for those nearing retirement. In 2014, homeowners between ages 55 and 74 who sold their home for a median price of $250,000 went on to purchase a home that was worth a median price of around $235,000.
Less time and money spent on upkeep
Larger family homes can take up tens of hours a week to keep up and cost more to cool in the summer and heat in the winter. Those who raised families will find that the three-story home they needed in the past is impractical now. NAR’s data supports this, showing that the median size home purchased by those over the age of 55 was between 1,800 and 1,930 square feet. This is a major downsizing from the age group of 35-44 years old, whose median home purchase size was 2,600 square feet.
Embrace the now
Many homeowners will find that their four bedroom split level was great for raising a big family, but now they tend to use their home for weekend visitors and casual get-togethers. The right home for this new lifestyle may be an open floor plan that includes guest quarters and attached bathrooms instead of many smaller bedrooms and bathrooms. In 2014, NAR found that homeowners over the age of 55 had a median of three bedrooms and two full bathrooms. Great rooms also tend to replace living rooms and dining rooms, and larger, eat-in kitchens are common to save space and keep the floor plan open.
Last year, NAR reported that 13 percent of buyers over the age of 50 purchased senior-friendly homes or units in active senior communities. In many cases, then, this age group is not only planning for the “now,” they are also planning for the future. One-level homes with open floor plans, larger rooms and wider hallways prove to be great not only for entertaining guests, but they also will be wheelchair and senior accessible in the future. Read more on how those over 50 are planning their retirement housing.
Last, and perhaps most importantly, it’s finally your time to choose. By selling your home, you can regain the flexibility you gave up as you pursued your career and family aspirations. Many approaching retirement in Minnesota and western Wisconsin are looking at chic downtown Minneapolis condos and a summer rental in a warmer climate. Others are looking at townhomes with modern conveniences and a homeowner’s association that handles basic yard and sidewalk maintenance. Still others are wondering if it’s time to retire full time to the lake home that has been a precious summer escape. Now, unlike any time previously, you can make the choice that best suits you, and no one else.
If you’re considering downsizing in 2015, we can assist you in the sale of your longtime family home. Reach out todayReach out today to learn how today’s market conditions favor sellers and to discuss what comes next for you after you sell your home.
Eight surprising things covered by homeowner’s insurance
Many people assume their homeowner’s insurance policy is just for major damage to the structure of the property, but these plans often cover a lot of day-to-day damages you might incur. Below, we outline coverages that are found under most homeowner’s insurance policies. For complete detail on coverage present in your own policy, you should contact your agent or your insurance carrier directly.
1. Loss in a college dormitory
Many carriers will extend personal property coverage from your homeowner’s policy for your child’s property while living in an on-campus dorm. While you may not waste a claim on a misplaced iPhone or a laptop stolen from a university dorm, this coverage can come in handy if the dorm’s sprinkler system damages everything from the flat screen TV to the brand-new futon. If your child lives in an off-campus house or apartment, their belongings may still be covered under your homeowner’s policy, but the coverage is limited, so a renter’s policy written directly for your child may be a better choice. In either case, your child’s address should be added to your homeowner’s policy for liability coverage.
2. Refrigerator re-stocking after a power outage
Many people don’t know what to do with their perishable food after a power outage and may try to salvage items that should be thrown out. If your refrigerated food spoils after a storm, your policy may cover you up to $500 for the value of the destroyed food. In this case, the deductible may not apply. So don’t play the guessing game. After discussing the claim with your adjuster, toss the food that was left unrefrigerated.
3. Snowstorm damage and the resulting temporary housing
As we are being reminded this winter, an unplanned snowstorm can put a kink in your plans and cause major damage to cars and homes. If the weight of snow causes roof damage, or a pipe bursts due to the cold, you should file a homeowner’s insurance claim immediately. If your home becomes uninhabitable due to covered damage after a winter storm, your homeowner’s insurance company may pay for your extra expenses such as the amount you have to pay in bills (hotel, restaurant, etc.) over and above what you would normally pay for your mortgage, food and similar bills.
4. Guest injuries
Whether your guest slipped on a well-waxed floor or slammed their hand in your front door (ouch!), your policy may cover their injuries under the “medical payments” part of your homeowner’s policy as long as the injuries are minor. For major injuries, your homeowner’s liability section may respond and pay both the injuries and legal expenses if you are found negligent.
5. Lawn damage
If, next summer, the hooligans down the street drive through your prized rose garden, you should be able to recoup some damages to your lawn, garden and trees through a claim on your homeowner’s insurance. However, lawn and landscape coverage is usually very limited in terms of the amount recoverable.
6. Fire department charges
Here’s an interesting one. Many fire departments charge for emergency response calls. Minnetonka’s fire department, for example, charges $250 for a call from a home alarm company. As you move into more rural areas, the costs may increase. In Troy, Wisconsin, a house visit from the fire department is $800, even if it’s a false alarm. Most homeowner’s policies provide coverage for these charges. Typically, the coverage limit is $500.
7. Dog bites
If Fluffy goes rogue on a walk and bites a well-meaning bystander, the liability section of your homeowner’s policy should cover the resulting medical bills and expenses. (You will also want to apologize profusely and bring your pup to obedience classes before taking her out in public again.)
8. Flying objects (no, really!)
This is extremely rare, but should debris from a plane, satellite or other flying object cause any damage to your home, yard or car, your resulting damages will most likely be covered under your homeowner’s policy.
The fine print: no flood insurance
It’s important to remember that even though homeowner’s insurance covers a lot of the issues noted above, most policies do not cover flood damage. If you live in or are thinking of moving to an area where flood damage is common, you should look into securing a flood policy in addition to your regular homeowner’s insurance plan.
Wondering what is covered under an Edina Realty homeowner’s insurance plan? Reach out to one of our excellent specialists today to find out.