The Big Down Payment Myth

39 percent of non-owners say they believe they need more than 20 percent for a down payment on a home purchase. Twenty-six percent believe they need to put down 15 to 20 percent, and 22 percent say they need a down payment of 10 percent to 14 percent to buy, according to the National Association of REALTORS®’ 2017 Aspiring Home Buyers Profile report.

But now for the reality: The average down payment on a purchase mortgage was just 11 percent in 2016. And that’s just the average; often times down payments are much lower. For borrowers under the age of 35, the average down payment was just under 8 percent, according to NAR’s survey.

There are many mortgage options that offer the opportunity to make low or even no down payments. For example, the Department of Veterans Affairs and the U.S. Department of Agriculture offer no-money down loans to those who are eligible. In 2016, 16 percent of buyers under the age of 35 put no money down on their home purchase.

Further, the largest share of loans for buyers under age 35 last year were for people putting down less than 5 percent on a home purchase (or about $3,500). The 3 percent down payment programs backed by Fannie Mae and Freddie Mac, and the 3.5 percent FHA mortgage that primarily targets first-time buyers, are both helpful programs to consider. These loan programs don’t require unblemished credit either. Please contact us for more details (no obligation).

Source: “Attention First-Time Buyers: Here’s the Key Stuff You Don’t Know About Mortgages,” realtor.com® (Feb. 9, 2017)

First-Time Home Buyers Aren’t Backing Down!

Higher mortgage rates and home prices aren’t deterring first-time buyers yet. Those new to the home-purchase game comprised 32 percent of the market in November, up from a 30 percent share a year ago, according to the National Association of REALTORS®’ latest housing report.

Overall, this has been a good year for this segment of the population. NAR’s 2016 Profile of Home Buyers and Sellers, released in November, showed that the annual share of first-time buyers was 35 percent in 2016, which is the highest since 2013 (38 percent).

“There are fewer available homes during the winter months but also fewer buyers,” suggests NAR President William E. Brown. “With mortgage rates and prices expected to increase as the year goes on, the first few months of 2017 could be an opportune time close on a home.” 
So we suggest let us start your home search now, plus the loan options ASAP!

Source: National Association of REALTORS®

Down Payment Gift? Better Watch Out!

Many first-time home buyers receive down payment assistance from a family member or close friend, but they may not realize there are specific guidelines they must follow when they take money from others for a home purchase.

Buyers will need a gift letter from the person or persons who gave them the money. The person who gifted your buyer the money will need to state on paper that he or she does not plan on asking for the money back in return and that it is, indeed, a gift.

“The gift letter is very serious,” says Casey Fleming, mortgage adviser and author of “The Loan Guide: How to Get the Best Possible Mortgage.” “While it is doubtful that a lender would ever audit a file after the fact to see if the recipient is paying the donor back, if the transaction goes bad, you might very well find yourself with a subpoena in your hand.” Remember, you cannot lie on a mortgage application. It’s a felony.

Source: “Getting a Down Payment as a Gift? Avoid the Mistakes That Could Mess You Up,” realtor.com® (Nov. 28, 2016)

Builders Hampered by Soaring Regulatory Costs

The average cost to comply with regulations for new-home construction has climbed nearly 30 percent in just five years, according to the National Association of Home Builders. These costs include everything from new construction codes and storm-water discharge permits to local impact fees. The jump in regulatory costs has grown at about the same rate as the average price for a new home.

“It really makes it hard to satisfy the lower end of the market, which is a lot of first-time buyers,” Paul Emrath, the NAHB’s vice president for survey and housing policy research, told The Wall Street Journal.

Also, local infrastructure impact fees have risen by 45 percent, on average, since 2005 in 37 major home-building markets nationwide, according to a separate study by Zelman & Associates, a housing research firm.

Source: “Home Builders Say They Are Squeezed by Rising Compliance Costs,” The Wall Street Journal (May 7, 2016)

Starter Homes May Be Coming Back, After All!

Good news for first-time buyers: more starter homes are on the way. A recent analysis by BUILDER online shows the number of homebuilders offering entry-level housing rose 25 percent last year.

Since the recession, the number of new entry-level homes plummeted. BUILDER online even declared the starter home “nearly extinct” last year. However, BUILDER’s analysis of the 2016 Builder 100/Next Builder list points out an increasing number of builders are devoting at least 50 percent of their business to building entry-level homes.

Still, “the re-entry of the entry-level buyer has begun, but this group’s next moves will be gradual,” says Metrostudy’s Brad Hunter about young buyers’ emergence into the housing market. “Income challenges remain, and there are still relatively few new house developments who target this group.”

Source: “Builder 100: Entry Level Makes a Comeback,” BUILDER (April 27, 2016)

How Will Higher Interest Rates Affect Housing?

Time is ticking: The Federal Open Market Committee is less than a week away from what most analysts predict will be a vote to raise the federal funds rate for the first time since June 2006. A federal funds rate increase would then prompt interest rates to move higher.

Just how big of an impact could it have to potential home shoppers’ wallets? Forbes.com cites an example of a 30-year fixed-rate mortgage with a 10 percent down payment on a $350,000 home at 4 percent will cost home purchasers about $1,503.86 per month plus taxes, home owner’s insurance and Private Mortgage Insurance. That same 30-year fixed-rate mortgage with a 4.5 percent interest rate will cost a home buyer $1,596.06 per month – an extra $92.20 per month or $33,191.54 over the 30-year life of a mortgage. If rates rise to 5 percent the costs will jump to an extra $184.40 per month and $66,383 over the 30 year life of the loan.

A new First American Financial report showed that interest rates would need to reach 5.1 percent before significantly influencing the volume of residential transactions.

Source: “What Will the Looming Fed Rate Hike Do to Housing?” HousingWire (Dec. 9, 2015) and “How Much House Will a Rate Hike Cost You?” Forbes (Nov. 8, 2015)

Should the Market Fear a 6% Jump in Rates?

The Federal Reserve’s decision today could potentially bring a close to a seven-year streak of very low mortgage rates. Here’s what an increase in rates could mean for the housing market.

“The potential move away from zero interest rate policy, for short-term rates, is a harbinger of higher mortgage rates ahead and the beginning of the end of this seven-year era of incredibly low mortgage rates and corresponding high affordability,” says Jonathan Smoke, realtor.com®’s chief economist.

Smoke says that mortgage rates that rise to 6 percent could have a big impact to what borrowers pay on their monthly mortgage. For example, in May, the average loan with a 30-year fixed-rate mortgage was $231,000 at a 4.03 percent average rate, which carried a monthly payment (principal and interest) of $1,107. However, that same loan amount at a 4.53 percent interest rate would jump the monthly payment to $1,175 – a 6 percent increase, according to realtor.com®’s analysis.

First-time home buyers may be particularly hard-hit, as well as high-cost areas.

Source: “Fed Decision Could Raise Mortgage Payments 6 Percent; and Out Price Potential First-Time Home Buyers in Certain Markets,” RISMedia (Sept. 16, 2015)

Survey Reveals How Buyers Size Up Homes

Two of the chief motivators in choosing the right home to the majority of buyers is its size and room layout/design, according to the American Housing Survey. The home’s price and neighborhood ranked closely behind.

But a closer look at the data reveals some slight differences in what house hunters view as the most important factors in selecting the right home.

New-home buyers were the most concerned with a home’s room layout/design, neighborhood, exterior appearance, and construction quality.

For first-time home buyers, however, the home’s price trumped everything else.

For all other buyers, the home’s layout/design, neighborhood, and price were #1.

In selecting a neighborhood, buyers reported the most important factors as being safety (71%), the look and design of the neighborhood (65%), friends/family (52%), and proximity to work (48%).

‘See Graphs’ at source: “Different Buyer Preferences? New vs. Existing Homes,” National Association of Home Builders’ Eye on Housing Blog (Aug. 4, 2015)

Better Days Ahead for First-Time Buyers

First-time home buyers have found themselves in a sellers market, faced with above-average price appreciation and bidding wars due to limited inventories of homes for-sale.

But in the second half of the year, the market is expected to shift toward more of a balance as more sellers – motivated by higher home prices – put their homes on the market, alleviating the inventory shortage. This will help provide buyers with more choices of homes to buy as well as likely soften the speed at which home prices are rising.

For potential first-time home buyers, the housing market will soon be more inviting, writes Jonathan Smoke, realtor.com®’s chief economist, in recent commentary. “Combined with a temporary reprieve from rising mortgage rates and slightly easier access to credit, buyers should find it easier to purchase a home in the months ahead,” Smoke says.

Source: “Don’t Lose Faith, Would-Be Home Buyers: It Will Get Better,” realtor.com® (July 23, 2015)

What First-Time Home Buyers Are Willing to Sacrifice

A new survey shows that consumers saving for a home are willing to forego modern conveniences in order to secure a down payment. That may even mean giving up phones, Internet, cable TV, or Starbucks, according to a newly released survey by the business advisory firm the Collingwood Group.

Potential first-time home buyers are making such sacrifices because they want to be able to make a sizable down payment on their home purchase. Nearly two-thirds recently surveyed by TD Bank say they’d like to put 20 percent down or more on their home purchase. The bank polled more than 1,000 consumers who were not home owners but intended to purchase a home within the next five years.

First-time home buyers are increasing their ranks lately, with their share in the housing market rising to 32 percent in May. That matches their highest share since September 2012, according to the National Association of REALTORS®. A year ago, first-time buyers represented 27 percent of all buyers.

Source: TD Bank First-Time Home Buyer Pulse and “Report Says More Millennials Value Home Ownership Over Conveniences,” MReport (July 14, 2015)