15 Home-Buying Myths, Busted

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I stumbled upon this Zillow article a little while back and thought it would make for an interesting rundown of things I sometimes see clients struggling with. Some of these things are simply not true. Others are exaggerated. Either way, buyers and sellers need to unlearn certain things about the real estate process before engaging in it. Read on for more.

MYTH: You need a 20% down payment. This hasn’t been required for decades! In fact, you can put as little as 3% down, depending on the loan or the location of the home.

MYTH: Your pre-approval rate is the rate you’ll get when you close. Interest rates adjust every day. So, what you see at pre-approval is based on current market conditions and other factors, and it can’t be “locked in” until you sign a purchase contract with the seller.

MYTH: You should wait to buy a home until prices are lower. Buying a home after prices go up can be risky, but so can waiting. In popular neighborhoods (like many in the Bay Area), it’s often better to go for it and not wait.

MYTH: Buying a home is always cheaper and a better investment than renting. Renting a home can be cheaper than buying in many places! The benefit to owning a home, of course, is that it will appreciate over time and build generational wealth.

MYTH: You should find a home before you apply for a home loan. It’s smart to get pre-qualified for a loan. It will give you more information to shop with.

MYTH: Buying a fixer-upper will save you money. Sure, maybe on the sticker price. But fixer-uppers need a lot more than just a fresh coat of paint. Generally, there are major issues that need to be tackled, not all of which are visible up front.

MYTH: You have to get your loan from the lender who pre-approves you. No, you have no obligation to stay with the lender you start with. Shop competitive offers and find the best fit before you go under contract.

MYTH: You shouldn’t buy until you can afford your ‘forever’ home. Selling a home can be costly, but if you wait to buy until you can afford that dream home rather than invest in a starter home, you may never buy at all.

MYTH: A 30-year, fixed-rate mortgage is always the best choice. Adjustable-rate mortgages (ARMs) can save thousands of dollars of interest over the life of the loan. That’s one example. There are other options!

MYTH: You can’t buy a home if you have student loans. Actually, those loans can hurt OR help your chances of buying a home – it can boost your credit scores but it can also raise your debt-to-income ratio for approvals. Consider every angle.

MYTH: You have to pay the seller’s asking price to buy a home. Definitely not. The seller’s asking price is simply what he or she hopes you’ll pay. Offers and counter-offers will bring you to a point of agreement in the end.

MYTH: You need excellent credit to buy a home. It’s good to have good credit, but there are great home loans and rates available for people with less-than-perfect credit too.

MYTH: Fall and winter are bad times to buy a home. It can actually work to your advantage to buy a home in seasons when most shoppers think it’s “bad.”

MYTH: You cannot buy a home if you are self-employed. The rules for getting a mortgage may be different for those who receive a W-2 from their employers, versus a 1099-NEC for being a gig or freelance worker. But it won’t stop you from buying!

MYTH: All lenders are the same when buying a home. You don’t just shop houses and rates when buying a home. There are also significant differences among lenders and you should find the best fit for you!

Happy House hunting an buying a home you love. We are currently seeing many price reductions, inventory is still low, but rates have come down. Thus if you have been on the fence, now may be a great time to buy with hopefully further rate drops and you can refi at that point. When I bought the home I am currently in, the rate was 8.5%. I ended up refinancing more than 8 times and currently have a 2.75% rate. Call me if you would like to chat about buying a home.

Seller and Lender credit guidelines

Jay Vorhees at JVM Lending came through with another great topic recently, which I want to share with you below. It involves an oft-overlooked, but very important aspect of selling a home: credits to a buyer. Read on!

Here are a few quick reminders/guidelines for Seller and Lender Credits.

If a credit is specified to be for a repair anywhere in a purchase contract, the repairs will have to be completed PRIOR to close of escrow. We will need to show proof they are complete with either an appraiser’s or a licensed contractor’s certification. Kristin: I handle it with a workaround by asking for a credit for closing costs on an addendum with no reference to the repair, see below.
Credits for closing costs cannot exceed actual closing costs. Be sure to check with your lender to get an estimate for total closing costs. If there are significant transfer taxes and an impound account, the total closing cost figure can be substantial, creating much leeway for credits. Kristin: When the credit exceeds closing cost, I have combined it with a price reduction, usually credits are more desired, but this way you don’t lose any of the credit.
Credits can be for non-recurring and recurring closing costs. There is no need to specify which. Credits can and should simply be for “closing costs.”
Closing cost credits should be on a separate addendum, and not on a “Request for Repairs addendum. It is well known that Realtors substitute “closing cost” credits for “repair” credits, to avoid disclosing repair issues. But, this should not be made too obvious by putting closing cost credits on a “Request for Repairs” addendum (even if the Request for Repairs addendum does not specifically note any repairs).
Make sure there are no large lender-credits in place already. We have had a few transactions grind to a halt because the selling agent negotiated a seller-credit for closing costs without knowing that we had already given the buyer a large lender-credit. As a result, the total credits exceeded closing costs, and we had to restructure entire transactions. Kristin: My recommendation is your agent should always be in conversation with your lender.
Lenders need credits before they order loan documents. Many agents negotiate credits at the 11th hour when sellers are more willing to acquiesce. We, however, need to know about all credits before we order loan documents. If we learn about credits after loan documents are drawn, we have to formally re-draw loan documents. This both costs money and delays escrows. Kristin: The credit isn’t negotiated until it is time to remove the inspection contingency and if it is a shorter close, it pushes up on the docs having to be redrawn and then the buyer as 3 days review before they can sign loan docs which can push the closeout.

Applying for a Home Loan? See JVM Lending’s “Don’t” List!

Once you’re pre-approved, the last thing you want to do is knock yourself out of qualifying range. My friend Jay Vorhees at JVM Lending is a great source on this issue, as he’s seen hundreds of borrowers in this situation. Now, he sends them a list of “actions to avoid” with every pre-approval letter. Heeding his advice will help you at least prevent delays and extra paperwork. Take a look!

1. Do not make large deposits that can’t be explained. When you are trying to qualify, any large deposit – think $500 for a new mattress, or all-cash payments – must be explained. Otherwise, an entire account can become invalid and unusable for qualifying. Always keep a paper trail to make large deposit explanations easier!

2. Do not take on new debt. If you increase your credit card balances, finance a vehicle, or take on debt in another way, your ratios will be impacted and it will reduce your maximum purchase price.

3. Do not take vacation days if you’re paid hourly. A single day off work can push you out of qualifying range if your debt ratios are high and approaching your limit.

4. Do not spend liquid assets. Pre-approval software relies on specific liquid asset levels. So, pre-approval amounts can change if liquid assets are significantly reduced.

5. Do not miss payments on any debts reporting on a credit report. This one is pretty obvious, and you should avoid missing payments anyway, but missing monthly payments that reduce your credit score may also reduce your qualification amount!

6. Do not co-sign for someone else’s debts. That’s a dangerous maneuver anyway, but even if you’re just a co-signer, the debt will show up on your credit report. That makes you responsible for the debt and the payments.

7. Do not file taxes with a tax liability owing, or with less income than in previous years. This mostly applies to self-employed borrowers (especially during tax season). The most recently filed tax returns will be what the qualifying income is based on, and all tax liabilities must be proven paid. JVM recommends that borrowers file an extension when possible if they are making offers during tax season.

Don’t hold your breath for another recession

According to an Inman.com article, Kevin Thorpe (Global Chief Economist at Cushman & Wakefield) says we are going to have a very long economic expansion.

At the National Association of Real Estate Editors conference, Thorpe said, “The U.S. will not be going into recessions anytime soon. Recessions don’t just happen. First, we need to see imbalances somewhere in the economy — too much credit, too much exuberance in any particular sector.”

A frequent speaker in the local real estate arena, Carol Rodini and some Bay Area economists agree that some changes Donald Trump’s Republican cabinet will make – redoing the tax code, trying to replace Obamacare, etc. – will be good for the economy.

Carol recently noted the top 10 tech companies in Silicon Valley are sitting on about $3 trillion in cash between their domestic and foreign accounts. Those companies grew about 7 percent last year and they believe that will continue this year.

So, if and when we end up in a recession, she believes it will be about a 4 percent dip. The Bay Area, because of Silicon Valley, will not feel it like the rest of the nation. For those buyers who are hoping for a dip so housing will be more affordable, you might want to buy now, before interest rates go up. For sellers: now and the near future is a good time to list!

Tips for preparing to buy a home

It takes a lot of preparation to buy a home. I know, I know, thank you Captain Obvious, right? But if you’re going to be searching for a home in 2017, I want you to be ready for what is headed your way!

From our friends at Bank of the West, here is a list of great tips for preparing yourself to buy a home. See my summary below:

1. Fix Your Credit

Your credit is one of the first things a lender will look at when approving you for a mortgage loan. You can get a free credit report once every 12 months from each of the three credit bureaus: Equifax, Experian and TransUnion at annualcreditreport.com. Make sure to check for mistakes and file a dispute with the business in question, as well as the credit agency, if you find any inaccuracies. They must investigate within 30-45 days.

2. Maintain Your Credit Score

Your FICO score is the most common number used by mortgage lenders to rate your creditworthiness. You can get your credit report with a FICO score for free, or for a small fee. Anything above a 740 FICO score will help you secure better interest rates. If your score is lower, you may still qualify for a mortgage, just with a higher interest rate attached. Your first instinct may be to find ways to boost that credit score. Here are two things NOT to do:

– Don’t close lines of credit – it may indicate credit risk and actually hurt your score

– Don’t open new lines of credit – the uncertainty of your spending habits with a new card might indicate risk and cause your score to tick up

3. Get a Big Down Payment

You’ll get a better interest rate on a mortgage if you have a larger down payment because lenders will think you’re less likely to default on your loan. Aim for a down payment of at least 20 percent of the selling price. This will also protect you from paying private mortgage insurance (PMI), which protects lenders if you default on a loan.

4. Get Pre-Approved

Meet with a mortgage specialist before you start shopping. They can help you determine an accurate budget and decide what kind of home you can realistically afford. Get a pre-approval letter and add it to a good credit report, income verification and a maximum allowable loan, and home sellers will take you most seriously among the suitors.

5. Keep Track of Your Money

You’ll have lots of documents, bank statements, etc. during the pre-approval and underwriting processes. These will be examined closely to verify income and expenses. If your records show unusual activity, you’ll be asked to explain it and you’ll have to jump that hurdle before continuing the approval process.

If you need a recommendation for outstanding mortgage brokers. I have a few that I highly regard.

Top 5 Must-Do’s for First-Time Home Buyers

So you’ve finally made the big decision. You’re going to buy a house!

You are aware of the long road ahead, but excited to take on the challenge and have a home you can call your own.

It’s a stressful process, however there are a few things you can do to help prepare for your first time through the home-buying process:

Determine your budget.

There are many online calculators available that can help you to get an idea of what your monthly mortgage payments should be, based on how much money you are looking to borrow. Don’t forget to include property taxes, though – estimate 1.25 percent of the purchase price for a yearly property tax estimate. If you are looking at a condo or a townhouse, then you most likely will have to consider a monthly HOA fee. Also, look at what your income, debts and assets are; this is where I strongly recommend you speak with a lender. The good ones break that all out for you and can help you work up a budget.

Examine your credit and credit score.

You want to get yourself in the best position to qualify for the lowest interest rates and best mortgage terms and one way to do that is to beef up your credit score. If your score is less than perfect, look for ways to increase your score. If you have limited credit history, look for ways to build positive credit before you apply for a mortgage loan. This is another area that a good mortgage broker can give some suggestions to improve your credit. No matter what your score is, review your credit report to ensure that there are no errors on your report which ay impact your ability to qualify for the mortgage you want.

Where will your down payment come from? And how much will you need?

Buying a home is a big financial commitment, which can often require a big cash down payment. Where will you be getting your down payment from – savings, a 401(k) or IRA withdrawal? As a gift from family? Although FHA loans are often an attractive option for first-time homebuyers because they only require you put 3.5 percent down, you’ll still need to roughly determine how much 3.5 percent will be and where you’ll be getting those funds from, while still saving enough for closing costs. All the while, you must keep your debt-to-income ratios in line with guidelines.

Begin to gather up all the documents you’ll need to qualify for a mortgage.

When you apply for a mortgage you’re likely going to need to show your lender proof of your identity (passport, driver’s license or similar) as well as recent pay stubs from your employer and copies of your past year (or two years) of tax returns. Each lender will have their own requirements, but gathering together these basic pieces of information can help make the mortgage application process go smoothly. Again, a good lender will send out an introduction email with a list of the things that are required.

Get preapproved for a mortgage before you begin house hunting!

This is a MUST! Home sellers want to know that you’re serious about buying, and one of the best ways to show them that is by submitting an offer that comes with mortgage pre-qualification. In some hot housing markets, sellers won’t even accept offers without a pre-qualification or DU Approval. A good real estate agent will also help guide you through this process, which can include an informative face-to-face about the whole process or a good lender recommendation.

Excerpts of this blog generously borrowed from The Orland Group Realtor Coaching.