Trying To Time The Real Estate Market?

Don’t.  You may think that you’re going to get a home while it’s at the ‘bottom’.  Here’s the thing though, are you considering what your overall cost of ownership would be?  More importantly, do you know what is going on in the mortgage market today that will impact you 60 days, 120 days or 12 months from now?  If you don’t, step back and listen.  You may think you get the real estate market, but I’d be willing to bet you don’t know what’s happening in the mortgage market.

So What’s Up?

It’s a great question.  The mortgage market has seen a lot of changes in the past year.  Now that we’re pretty much down to conventional loans (Fannie Mae and Freddie Mac) and FHA loans, they’re calling the shots.   As you may have heard, the conventional lenders aren’t being extremely profitable right now (understatement of the YEAR).  Since they’re seeing rougher times, they’re naturally passing that cost onto consumers.  The good news is you still have time to beat the clock!  Remember, home ownership is not all about the price of the home.  It’s your overall cost of ownership and your home financing should be taken into consideration!

How High Will Rates Go?

I want to be extremely clear – mortgage rates are NOT moving higher because of inflation fears right now.  They are moving higher because Fannie Mae and Freddie Mac are re-assessing risk.  They’ve seen way too many deals go south and they’ve lost their shorts (and so have their stock holders).   Fannie Mae recently announced (last Monday) that they will be increasing their ‘adverse market fee’ from .25% to .50%.   For consumers, that roughly means about .125%-.25% higher interest rate.  That is about $16 per $100,000 your borrowing.  Over 30 years, that’s over $5,700!  Do I have your attention yet?

It Gets Better

Yes, Fannie Mae and Freddie Mac often follow each other.  So, count on Freddie Mac instituting the same increased fees in the next couple of months.  Furthermore, Fannie and Freddie have been implementing credt score (FICO) based increases to interest rates.  You could literally have a 1% higher rate than some consumers just because of your credit score.  This credit score based system is likely to stay and likely to get even worse.  That’s right, it will get worse before it gets better.

Still Don’t Believe Waiting is a Suckers Choice?

I’m going to put together a comparison.  This is simply for demonstration purposes only, but it should drive my point home that your overall cost of ownership should be what you’re focusing on.

Assumptions:
Let’s assume that homes could drop another 5% and that would be the skeptics “bottom”.  Let’s also assume in this scenario, there will be 20% down (only to make this the best case scenario for skeptics).  Let’s also assume that in the future the new ‘adverse market fee’ from Fannie Mae has kicked in with a small credit score adjustment (this really is more than fair).

Today:
You decide you want to buy a home for $200,000.
You are financing $160,000 (80% of purchase price).
You can obtain financing at 6.25% for 30 Years, Fixed.

Your monthly payment (principal and interest) would be: $985

Billionaire Investor, Waiting For Bottom:
You have waited for the home to be bought for $190,000.
You’re financing $152,000 (80% of purchase price).
You can now obtain financing at 6.75% for 30 Year, Fixed.

Your monthly payment (principal and interest) would be: $985

They cost EXACTLY the same!

The Big(ger) Picture

The one thing that isn’t being addressed here is the availability of these programs.  If you’re putting 20% down, you’ll always be able to get a loan (assuming you have a job, and some money in the bank).   However, What If:

• You’re short on cash?
• You’re a first time home buyer?
• You’ve got less than perfect credit?
• Don’t have a credit score at all?
• Need to use a roomate’s rent for income?
• Want that home that’s currently on the market?
• Your landlord kicks you out?
• A dog had a square….?

My point is these things begin to matter.  If you want to bulletproof your approval, you need to get started today.  While there is still a loan you can get.  I’ve had multiple potential homeowners come to me (in the past few months) and I’ve had to turn them down (when they were well qualified) and they could have qualified without a problem just 6 short months ago.   That hurts.

There Is No One Size Fits All Answer, But There is a Way to Find Out!

If the answer was the same for everyone, there would be no need for professionals in this business (oh wait, that recently changed huh?)… Truth is, things have changed.  Some Iowans are sitting on the sidelines waiting for the ‘bottom’ of the market, but have no idea how their financing impacts their plan.

If you or someone you know is looking to purchase…. or sitting on the bench, tell them to check this out.  I think the comparison is about as ‘best case scenario’ you could use.  Trust me, things could get much more different.

As always, if you’ve got questions and need answers, I’m here to help.

Photo Kudos!

Can’t Come Up With A Down Payment to Buy Your Dream Home?

For a few years, just about anyone could get 100% financing on a home (assuming you could document something….). Well, times have changed and so have the popular loan programs. I’m not here to throw down a bunch of ‘Mortgage Talk’, but I want to let you know that there is Down Payment Assistance (a.k.a. DPA) available in Iowa! This is program that will allow you to receive the down payment that ALL loan programs now require from a non-profit program.

Interested? Read on!

What Is Down Payment Assistance?

Down payment assistance is a program that is offered by many non-profit companies. I personally work with a few, so if you need to connect with one – just let me know. With that said, down payment assistance effectively considered a ‘Gift Source’ by the FHA (FHA is one of the top lenders for low down-payment loans). The down payment assistance is given to the buyer at closing. Also at closing, the seller reimburses the non-profit organization from the profit of their home.

Confused? Don’t be.

If you understand how this program works (which I can help you ‘Get It’), you can use down payment assistance to purchase a home with no repayment of those gift funds.

Cool, huh?

How Much Money Can You Get?

Don’t get greedy here. Ok, if you wanted to, you can get up to 6% of the purchase price from the non-profit.

This could apply towards (or completely cover):

• Down Payment
• Closing Costs
• Pre-paid Items (taxes, insurance, etc.)

What’s It Take To Qualify?

1. You must qualify for an eligible loan product that allows charitable organizations to provide gift funds.
2. There are no reserve requirements (you don’t have to have a bunch of cash in the bank).
3. There are no minimum credit score requirements.

Where Do You Sign Up?

This is the painless pitch. I’d like to consider myself an expert on the subject. Each client is different, so advice will vary. Feel free to get in touch with me or you can stalk me.

What Do You Absolutely Need To Know?

• In order to qualify for down payment assistance, you’re lender has to make sure the program you’re using works.
• Your Realtor needs to know how to properly write an offer to request the down payment assistance (again, I can coach ‘em)
• You HAVE to know the breakdown of all of the numbers. To the penny. You don’t want to end up at closing unable to write a check or even worse, ask for more Down Payment Assistance than you can actually use.

How Long Will Down Payment Assistance Be Available?

No one knows for sure. The mortgage business has been changing A LOT in the past year. If you’re on the fence, you should talk with a mortgage professional to determine what makes most sense for you. We’re not sure what the future holds, but I have a pretty strong opinion and I’m honest when it comes to measuring risk vs. reward.

What’s The Next Step to Do This?

Talk with a mortgage professional who understands these programs inside and out. Again, if you don’t have the numbers put together correctly – you could have some nasty surprises at closing. With that said, this is a great program if used properly!

Don’t wait, just make the call.

What if I don’t have the money to buy a home right now?
There are several loan programs available that offer low and no down payment options. Some programs permit gift money as a down payment, and often sellers are willing to make a contribution to your purchase if they want to sell the home quickly.

Paying Less Money to ‘The Man’
Tax deductions vary, but the IRS has laid out solid rules. They also have several tax publications full of helpful information worth taking the time to read. Publication 530, Tax Information for First-Time Homeowners, is very thorough, as is Publication 936, Home Mortgage Interest Deduction. For quick reference, you can refer to Tax Topics 505, Interest Expense, and 504, Home Mortgage Points.

These publications often refer to local and state guidelines, so you will want to consult a CPA to answer all the questions that arise from reading these materials. If you need a reference, just let me know! Here are a few tips you should know up front:

• Real Estate taxes are deductible on a primary residence. Real Estate taxes are paid at settlement or closing, or through an escrow account.
• Mortgage interest is deductible on a loan to purchase, build or improve your home. Your lender (the person you make mortgage payments to) will provide you with a Mortgage Interest Statement (Form 1098) to list the total interest paid during the year. This should include any deductible points paid for that year.  
• Pre-paid interest is deductible in the year it is paid. At the close of a real estate transaction, homeowners pay for the interest on their loan that falls between the closing period and the first of the next month. Mortgage payments are made “in arrears” so when a loan is closed mid-month, there is interest due to the new lender which must be paid in advance.
• If you are building a home, the interest on the construction loan is deductible. The construction period cannot exceed 24 months prior to the date that you move in if you claim this as your primary residence.

The Verdict
The cards are really stacked showing a large advantage to owning a home. It’s important to consider your long term goals and how long you plan to stay in a place when you buy it. If you’ll move in a year – It’s probably not the best idea. If you’ll be there for a few years – It’s a pretty easy choice.

There’s a lot more going for homeownership than just the tax advantages, but appreciation is so tough to figure nowadays, I’ll do us a favor and leave it out.

Really – to determine what makes most sense for you, it makes most sense to just get in touch with me directly. I’m super honest.. If it doesn’t make sense for you, I’ll be the first person to tell you. In the meantime, if you want to calculate what a mortgage payment would look like (on your own) use the calculator on the right hand side of the site!