I want to buy a home. But I can't because...

Most renters want to buy a home, however they are reluctant to begin the buying process due to their concerns over lack of a down payment, poor credit scores or a debt ratio that may be too high. The reality of those concerns, is that many of them can be resolved. 
 


Yesterday, we discussed the belief Americans have in homeownership and their desire to partake in this piece of the American Dream. We also discussed some of the obstacles preventing them from attaining that goal. However, studies have shown that many of the obstacles mentioned are perceived, not real.
A recent study by Fannie Mae, What Do Consumers Know About The Mortgage Qualification Criteria?, revealed that many consumers are either unsure or misinformed regarding the minimum requirements necessary to obtain a mortgage. Let’s break down three such challenges.

Down Payment

Perceptions

Many renters have mentioned that the lack of an adequate down payment is preventing them from moving forward with the purchase of a home. According to the Fannie Mae report:

• 40% of all renters don’t know what down payment is required
• 15% think you need at least 20% down
• An additional 4% think you need at least 10% down

The Reality

There are programs offered by Fannie Mae, Freddie Mac and FHA that require as little as 3-3.5% down. VA and USDA loans offer 0% down programs. According to the National Association of Realtors, the typical down payment for a first time buyer is 6%.

Credit Score

Perceptions

Many renters have mentioned that the lack of an adequate credit score is preventing them from moving forward with the purchase of a home. According to the Fannie Mae report:

• 54% of all renters don’t know what credit score is required
• 5% think you need at least a 740 credit score

The Reality

Many mortgages are granted to purchasers with a credit score of less than 700. According to Ellie Mae, the average credit score on a closed FHA purchase is 687 and the average credit score on all loans is 722.

Back End Debt-to-Income Ratio (DTI)

Perceptions

Many renters have mentioned that they carry too much debt which is preventing them from moving forward with the purchase of a home. According to the Fannie Mae report:

• 59% of all renters don’t know what DTI is acceptable
• 25% think you need at under 25%
• 7% think you need under 39%

The Reality

Lenders like to see a back-end ratio that does not exceed 36%. Fannie Mae’s maximum total DTI ratio is 36% of the borrower’s stable monthly income. The maximum can be exceeded up to 45% based on credit score and other requirements.

Bottom Line

Don't let a lack of knowledge or misinformation keep your family from buying a home this year. Meet with a local real estate professional who can evaluate your ability to buy now!

How long will it take...

Depending on your housing region, it may take a lot longer to save up for a down payment on a house than you had anticipated. But what if you look at other mortgage options that require a lower down payment? You could shorten that wait by years... 

  In a recent study conducted by Builder.com, researchers determined that nationwide it would take “nearly eight years” for a first-time buyer to save enough for a down payment on their dream home.
Depending on where you live, median rents, incomes and home prices all vary. By determining the percentage a renter spends on housing in each state and the amount needed for a 10% down payment, they were able to establish how long (in years) it would take for an average resident to save.
According to the study, residents in South Dakota are able to save for a down payment the quickest in just under 3.5 years. Below is a map created using the data for each state:

What if you only needed to save 3%?

What if you were able to take advantage of one of the Freddie Mac or Fannie Mae 3% down programs? Suddenly saving for a down payment no longer takes 5 or 10 years, but becomes attainable in under two years in many states as shown in the map below.

Bottom Line

Whether you have just started to save for a down payment, or have been for years, you may be closer to your dream home than you think! Meet with a local real estate professional who can help you evaluate your ability to buy today.

Even though interest rates are projected to rise - they are still almost half of what they were in 2000, and 3x less than in 1985...

Some Highlights:

• Interest rates have come a long way in the last 30 years.
• The interest rate you secure directly impacts your monthly payment and the amount of house that you can afford.
• Experts predict that rates will increase by 3/4 a percent over the next 12 months.
• Secure a low rate now to get the most house for your money.

Rumor has it...

...that mortgage interest rates are at risk of rising as much as 1% over the course of the next year.  Thinking of moving?  Act sooner than later!



Last week, an article in the Washington Post discussed a new ‘threat’ homebuyers will soon be facing: higher mortgage rates. The article revealed:

“The Mortgage Bankers Association expects that rates on 30-year loans could reach 4.8 percent by the end of next year, topping 5 percent in 2017. Rates haven’t been that high since the recession.”

How can this impact the housing market?

The article reported that recent analysis from Realtor.com found that -

“…as many as 7% of people who applied for a mortgage during the first half of the year would have had trouble qualifying if rates rose by half a percentage point.”

This doesn’t necessarily mean that those buyers negatively impacted by a rate increase would not purchase a home. However, it would mean that they would either need to come up with substantially more cash for a down payment or settle for a lesser priced home.
Below is a table showing how a jump in mortgage interest rates would impact the purchasing power of a prospective buyer on a $300,000 home.

Bottom Line

If you are considering a home purchase (either as a first time buyer or move-up buyer), purchasing sooner rather than later may make more sense from a pure financial outlook.

Interest rates may be inching up, however the FICO score requirement is dropping...

In a recent article by the Wharton School of Business at the University of Pennsylvania, it was revealed that some Millennials are not looking to purchase a home simply because they don’t believe they can qualify for a mortgage.
The article quoted Jessica Lautz, the National Association of Realtors’ Managing Director of Survey Research, as saying that there is a significant population that does not think they will be approved for a mortgage and doesn’t even try. The article also quoted Fannie Mae CEO Tim Mayopoulos :

“I do think that there’s a sense out there in the marketplace among borrowers that credit may not be available, especially for people with lower credit scores.”

So what credit score is necessary?

A recent survey reported that two-thirds of the respondents believe they need a very good credit score to buy a home, with 45 percent thinking a “good credit score” is over 780.
In actually, the FICO score on closed loans (as reported by Ellie Mae) is much lower and has been dropping over the last several months.

Bottom Line

Millennials who are considering a home purchase should get advice from a local real estate or mortgage professional now. They may be surprised how much the requirements for a mortgage have eased.

Interest rates have risen a bit lately, however are still low when compared to the past...

Mortgage interest rates, as reported by Freddie Mac, have increased over the last several weeks. Along with Freddie Mac, Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors are all calling for mortgage rates to continue to rise over the next four quarters.
This has caused some purchasers to lament the fact they may no longer be able to get a rate less than 4%. However, we must realize that current rates are still at historic lows.
Here is a chart showing the average mortgage interest rate over the last several decades.

Bottom Line

Though you may have missed getting the lowest mortgage rate ever offered, you can still get a better interest rate than your older brother or sister did ten years ago; a lower rate than your parents did twenty years ago and a better rate than your grandparents did forty years ago.

Mortgage rates are on the way up...

The interest rate you pay on your home mortgage has a direct impact on your monthly payment. The higher the rate the greater the payment will be. That is why it is important to look at where rates are headed when deciding to buy now or wait until next year.
Below is a chart created using Freddie Mac’s October 2015 U.S. Economic & Housing Marketing Outlook. As you can see interest rates are projected to increase steadily over the course of the next 12 months.

How Will This Impact Your Mortgage Payment?

Depending on the amount of the loan that you secure, a half of a percent (.5%) increase in interest rate can increase your monthly mortgage payment significantly.
According to CoreLogic’s latest Home Price Index, national home prices have appreciated 6.4% from this time last year and are predicted to be 4.7% higher next year.
If both the predictions of home price and interest rate increases become reality, families would wind up paying considerably more for their next home.

Bottom Line

Even a small increase in interest rate can impact your family’s wealth. Meet with a local real estate professional to evaluate your ability to purchase your dream home.

Fannie Mae projects an increase in housing starts, home sales AND interest rates...

http://goo.gl/ZANKJ6

Some Highlights: 

• 30-year fixed mortgage rates are projected to increase steadily over the next year.
• Housing Starts will well surpass 2015 numbers.
• Home Sales will reach an annual rate of over 6 million by the fourth quarter of 2016.

Want to build some net worth? Stop renting in 2016 and buy a home.

Every three years the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups. The latest survey, which includes data from 2010-2013, reports that a homeowner’s net worth is 36 times greater than that of a renter ($194,500 vs. $5,400).
In a recent Forbes article the National Association of Realtors’ (NAR) Chief Economist Lawrence Yun predicts that in 2016 the net worth gap will widen even further to 45 times greater.
The graph below demonstrates the results of the last two Federal Reserve studies and Yun’s prediction:

Put Your Housing Cost to Work For You

Simply put, homeownership is a form of ‘forced savings’. Every time you pay your mortgage you are contributing to your net worth. Every time you pay your rent, you are contributing to your landlord’s net worth.
The latest National Housing Pulse Survey from NAR reveals that 80% of consumers believe that purchasing a home is a good financial decision. Yun comments:

“Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that homeowners steadily build wealth. The simplest math shouldn’t be overlooked.”

Bottom Line

If you are interested in finding out if you could put your housing cost to work for you through homeownership, meet with a real estate professional in your area who can guide you through the process.

Why is there so much mortgage paperwork now? It's quite simple...

We are often asked why there is so much paperwork mandated by the bank for a mortgage loan application when buying a home today. It seems that the bank needs to know everything about us and requires three separate sources to validate each and every entry on the application form.
Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago.
There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history.

1. The government has set new guidelines that now demand that the bank prove beyond any doubt that you are indeed capable of affording the mortgage. During the run-up in the housing market, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again
2. The banks don’t want to be in the real estate business. Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.

However, there is some good news in the situation. The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate probably at or below 4%.
The friends and family who bought homes ten or twenty ago experienced a simpler mortgage application process but also paid a higher interest rate (the average 30 year fixed rate mortgage was 8.12% in the 1990’s and 6.29% in the 2000’s). If you went to the bank and offered to pay 7% instead of <4%, they would probably bend over backwards to make the process much easier.

Bottom Line

Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.

A quick snapshot of the housing market

Is it easier to qualify for a mortgage?

 

There has been a lot of talk about how difficult it is to get a home mortgage in today’s lending environment. However, three recent reports have revealed that lending standards are beginning to ease. This is great news for both first time buyers and current homeowners looking to move or buy a second vacation/retirement home. Let’s look at the three reports:

The MBA’s Mortgage Credit Availability Index

This index, issued by the Mortgage Bankers’ Association, measures the availability of credit available in the home mortgage market. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of a loosening of credit. We can see that the index has been increasing nicely this year:

Fannie Mae’s latest Mortgage Lender Sentiment Survey

This survey revealed that more lenders report that mortgage lending standards across all loan types are easing. The survey asked senior mortgage executives whether their company’s credit standards have eased, tightened, or remained essentially unchanged during the prior three months. The gap between lenders reporting easing as opposed to tightening over the prior three months jumped to approximately 20%. This represented a new survey high of "net easing." In addition, the share of lenders who expect their organizations to ease credit standards over the next three months also ticked up this quarter.
Doug Duncan, senior vice president and chief economist at Fannie Mae, addressed this easing of standards:

"For the first time in seven quarters, we see a pronounced increase in the share of lenders, particularly medium- and larger-sized lenders, reporting on net an easing of credit standards … This is a significant result in light of public discourse on credit availability and standards … Overall, we expect that lenders' tendency toward easing credit standards, together with relatively low mortgage rates and a strengthening labor market, will continue to support the housing market expansion."

Ellie Mae’s latest Origination Insights Report

The easing of credit standards is also confirmed in this report which showed that the average FICO score on a closed loan fell to its lowest point in well over a year. Here is a chart of average FICO scores on closed loans so far in 2015:

Just keep an eye on interest rates…

Although this is all great news, there was one challenge in the recently released data. Ellie Mae reported that the average interest rate on closed loans is beginning to inch upward:

What this means to you…

If you are a first time buyer or a current homeowner thinking of moving up to a bigger home or buying a vacation home, now may be the time to act. Mortgage lending standards are beginning to ease and interest rates are beginning to inch up.

A good housing market has a positive economic impact on more than just one house...

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Hair isn't the only thing that has improved since the 80's!

Can you believe how low interest rates are today, versus over the past 40 years?

4850 Kings Way West, Gurnee IL 60031

Sometimes, the little details are what turns a house into a home.  Lovingly remodeled and upgraded Providence Village colonial boasts custom millwork, redesigned kitchen with top of the line cabinetry & stainless steel appliances.  Gleaming wood floors throughout most of the first floor, and the master bedroom.  First floor den, first floor laundry room.  Cozy family room with fireplace.  Full finished basement boasts wet bar, powder bath & additional office.  $390,000

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Libertyville is ranked #15 on Nerdwallet's list of the best places to start a business in Illinois!

For the full list, click on the story below...

Best Places to Start a Business in Illinois

Need a reason to buy a home, instead of renting one?

  Check out these Keeping Current Matters statistics...


There are some people that have not purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent free, you are paying a mortgage - either your mortgage or your landlord’s.
As The Joint Center for Housing Studies at Harvard University explains:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return.  
That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

Christina Boyle, a Senior Vice President, Head of Single-Family Sales & Relationship Management at Freddie Mac, explains another benefit of securing a mortgage vs. paying rent:

“With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.”

As an owner, your mortgage payment is a form of ‘forced savings’ which allows you to have equity in your home that you can tap into later in life. As a renter, you guarantee the landlord is the person with that equity.
The graph below shows the widening gap in net worth between a homeowner and a renter:

Bottom Line

Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, owning might make more sense than renting since home values and interest rates are projected to climb.

158B Golf Road, Libertyville IL 60048

Updated 2 bedroom, 2 bath Libertyville condo offers maintenance free living!  Laundry room in unit, plus an attached 1 car garage.  Affordably priced too! $153,900

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18493 Springwood Drive, Grayslake IL 60030

Freshly painted and ready to go!  Four bedroom Oakwood home features hardwood flooring, vaulted ceiling, fireplace and unfinished basement.  $258,900 www.18493springwooddrive.tkmomteam.com 

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