Last year, the Federal Reserve took action to try to bring down inflation. In response to those efforts, mortgage rates jumped up rapidly from the record lows we saw in 2021, peaking at just over 7% last October. Hopeful buyers experienced a hit to their purchasing power as a result, and some decided to press pause on their plans.
Today, the rate of inflation is starting to drop. And as a result, mortgage rates have dipped below last year’s peak. Sam Khater, Chief Economist at Freddie Mac, shares:
“While mortgage market activity has significantly shrunk over the last year, inflationary pressures are easing and should lead to lower mortgage rates in 2023.”
That’s potentially great news if you’re a buyer aiming to jump back into the housing market. Any drop in mortgage rates helps boost your purchasing power by bringing down your expected monthly mortgage payment. This means the lower mortgage rates experts forecast this year could be just what you need to reignite your homebuying goals.
While this opens up a window of opportunity for you, remember: you shouldn’t expect rates to drop back down to record lows like we saw in 2021. Experts agree that’s not the range buyers should bank on. Greg McBride, Chief Financial Analyst at Bankrate, explains:
“I think we could be surprised at how much mortgage rates pull back this year. But we’re not going back to 3 percent anytime soon, because inflation is not going back to 2 percent anytime soon.”
It’s important to have a realistic vision for what you can expect this year, and that’s where the advice of expert real estate advisors is critical. You may be surprised by the impact even a mild drop in mortgage rates has on your budget. If you’re ready to buy a home now, today’s market presents the opportunity to get a more affordable mortgage rate, find your dream home, and face less competition from other buyers.
The recent pullback in mortgage rates is great news – but if you’re ready to buy now, holding out for 3% is a mistake. Work with a local lender to learn how today’s rates impact your goals, and let’s connect to explore your options in our area.
Financial Fundamentals for First Time Homebuyers
Are you prepping to buy your first home? If so, one of the steps you should take early on is making sure you’re financially ready for your purchase. Here are just a few of the financial fundamentals you’ll need to focus on as you set out to buy a home.
Build Your Credit
Your credit is one element that helps determine which home loan you’ll qualify for. It also impacts your mortgage interest rate. While there are many factors that go into your mortgage application, a higher credit score could lead to a lower monthly payment in the long run.
So how do you make sure your credit is in the best shape possible when it’s time to buy? A recent article from NerdWallet lists a few tips you can use as you work to build and strengthen your credit. They include:
- Tracking your credit and disputing any errors that show up on your reports.
- Paying your bills on time. This includes making loan payments and paying down any open lines of credit.
- Keeping your credit card balances low. Paying more than your minimum monthly balance when you’re able can help.
Automate Your Savings for Your House Fund
You might also be wondering how you can achieve your down payment savings goals. Bankrate provides buyers with a number of tips to help you save, including searching for down payment assistance programs and ways you can save more, faster. As the article says:
“One of the best ways to save for anything — including a down payment — is to set it and forget it. If you receive a regular paycheck, ask your employer to direct a portion of that payment into a savings account. If you’re a freelance worker or independent contractor, set up a recurring transfer from a checking account to a savings account to establish the routine.”
Get Preapproved
As you prepare for your purchase, you’ll also need to have a good grasp on your budget and how much you’ll be able to borrow for your home loan. That’s where the preapproval process comes in.
Preapproval from a lender lets you know how much money you can borrow for your home loan. And having that knowledge, plus an understanding of your savings, can help you decide on your target price range for a house.
From there, you can start browsing for houses online and see what’s available in your area in that general price point. This can help you really understand your options so you can start to picture your future home.
For Customized Advice, Build a Team of Professionals
Finally, the best way to make you’re prepared for your purchase is to connect with trusted real estate professionals. Having expert advisors in the industry will help you make strong decisions throughout the homebuying process based on your specific goals, finances, and situation. They know the market and can guide you toward the home you deserve.
Credit Healthy – Credit Scores, Lenders, and Pre-Approval Letters
Agent Joyce Marie Jackson returns for another installment in her “Credit Healthy” series with information about the all important pre-approval. A very important step in the process of buying a home, a lender’s pre-approval relies on several factors, including your credit score. Let’s hear from Joyce…
Too often, people are more interested in their credit score than what’s in their credit report. The truth is a person can have a good credit score and still not qualify for a loan or credit card for a number of reasons. This concern opens the door for one of the most important questions a Realtor will ask a potential buyer, “are you pre-approved?” This important question may cause a buyer to stop communicating with the Realtor…for some misunderstood reason, for some buyers, the question seems offensive and invasive.
If it was asked incorrectly, I understand. However, it is one of the most necessary questions a Realtor will ask a buyer in addition to asking if you are already signed with another Realtor. Too often a person pulls their credit history and gets their credit scores through a number of sources for free or a small fee. The scores that come with this type of report may show credit scores at a higher number than what a lender will pull. It is frustrating trying to understand why the scores are so different. More to the point, why are the Lender scores usually much lower than what the buyer can pull independently?
According to findings by the Credit Sesame app, there are a few reasons why. Most lenders will pull the FICO (Fair Isaac Corporation) score and there are several types of FICO scores: FICO Auto Score (250-900), FICO Bank Card Score (250-900), and FICO Mortgage Score (300-850). Other types of FICO scores vary: FICO 5, FICO 2, FICO 4, FICO 8, and FICO 9 all exist. They are similar and different. In addition, all lenders may not use the same FICO score algorithm. The FICO score will consider more of your debt than other types of credit scoring systems.
Once a lender receives your three credit scores, lenders have a formula that they use to determine your final score. One example could be, from three credit bureau, your scores were 730, 685, and 710. The highest and lowest score is knocked out. The middle score will stand as the winning number, 710.
With other types of scoring systems such as Vantage, all debt may not be included therefore resulting in a higher credit score.
These are just a few reasons why your free credit scores may be higher than the one the lender will pull. So, what should you do? You can still get the credit report and use it to clean up anything that is not yours or should not be there. Once you’ve done the credit clean up, then allow a lender to pull your report and provided you with the scores that will be used to qualify you to purchase your home. The Lender will go over the report with you and provide tips if needed to help boost your score. After the lender receives requested documentation, verifies employment, and the credit score is right, you will receive a pre-approval letter naming the amount you can purchase at. Sounds like a plan. So, the next time a Realtor asks if you are pre-approved, don’t let that question scare or stop you from moving forward. Knowing the answer to that question will open the door for a successful home buying adventure.
image courtesy of karmadude
Credit Healthy – Build It Right From Ground Zero
When it comes to buying a home, few things are more important than your credit. The better it is, the more buying power you have. In this article the first is a series of posts entitled “Credit Healthy,” agent Joyce Marie Jackson breaks down your credit score and takes a look at what it takes to build your credit health from the bottom up. Whether you’re a first time homebuyer or this is one of many purchases you’ve made in your lifetime, it pays to understand what goes into your credit score so you can be prepared when it comes time to buy. Enough from us…we’ll let Joyce take it from here…
Too often a buyer is so excited about buying a home, the basics are forgotten.
You’ve saved some money, that’s good, and maybe paid down some of you debt. Your lease is coming to an end soon, so I guess it’s time to shop for a home. Is that it or are there other steps?
Here’s an option:
- Contact your financial institution and inquire if they offer a credit score and/or monitoring plan for free or for a small fee. You may ask yourself, “Why do I need to do this?”
The reason is because before you can start a plan, you must know where you stand. Knowing what’s in your credit report is the first step in identifying the health of your credit worthiness.
Your credit worthiness is what a lender will use to approve or disapprove you for a mortgage loan. It’s all in the report, but it’s up to you to make sure it’s accurate. - Know how your FICO score is determined.
- 35% – Payment History – Always make your payments on time.
- 30% – Amounts Owed – Knowing your credit limit is key. The amount you owe and the amount your have available will determine your utilization ratio and debt ratio.
- 15% – Length of Credit History – The age of an account is important. The longer you have a particular credit card, the better. If you decide to pay it off, that’s great! Just don’t close it out. Closing out a credit card that you’ve had for a long time can lower your credit score.
- 10% – Type of Credit Used – Similar to building your retirement portfolio, your credit should also contain a mixture of different types of credit, such as credit cards which are usually revolving credit, fixed loans, and other mixtures of credit.
- 10% – New Credit – New credit and the available amount. Don’t max it out.
- So, 35+30+15+10+10 = 100% of your FICO score.
- List your expenses, make a budget and track your spending.
You’ve identified what’s in your credit report and taken steps to make the report accurate. You know what makes up a credit score and what parts you may need to work on in order to increase it. Saving is also key and must be part of the budget. In addition to having a great credit score and low to no debt, there is still a need to have available funds for various buyer expense such as inspections, appraisal, earnest money, option money, closing costs, and down payment. Does this mean buyers have to have perfect credit and be debt free before they should purchase a home? No, it just means that the more you know and the better prepared you are, the better your home buying experience will be. So, “Build It Right from Ground Zero.”
image courtesy of zeevveez
VA Loan Minimum Property Requirements (MPRs)
VA loan minimum property requirements (or MPRs as they are often known) are specific guidelines issued by the Department of Veterans Affairs covering specific aspects of a home necessary for the home to be eligible to be purchased with a VA backed mortgage. The general basis for the VA loan minimum property requirements is that the property should be free of any hazards that might hurt the occupants or prevent them from normal enjoyment and use of the property. If the home does not meet these minimum property requirements, the VA will not guarantee the loan and the home will either need to be brought up to speed to meet these requirements or the VA will not guarantee the loan, effectively ended the purchase. There is a lot more to see and read before you opt for credit or loan.
An Overview of VA Loan Minimum Requirements
The following list of VA loan minimum requirements is a general overview and is not meant to replace the guidelines issued by the VA. Contact your lender or the VA for a list of current guidelines and requirements. When considering a loan, the first thing you should do is to have a debt management plan for which you can look at https://www.debtconsolidation.com/how-to-get-out-of-debt/.
Space Requirements – The home must have suitable space for living, sleeping, cooking/dining, and sanitary facilities (bathrooms).
Mechanical Systems – Mechanical systems must be safe to use, protected from any potential destructive elements, fit the needs of the home for capacity and quality, and have reasonable future usage.
Heating Systems – The home’s heating system must be adequate for health and comfort of the occupants. Special rules apply to wood burning stoves.
Water and Sanitation – Home must have available hot water and safe drinking water. This VA also requires a safe method of sewage disposal.
Roofing – Roofing must be free of leaks and possess a reasonable future life span. Special rules apply to replacing defective roofs with multiple layers of shingles.Also, for ultimate guide to gutter protection click here
Crawl Spaces – Crawl spaces must be accessible, free of debris, and properly vented. Moisture or pooling of water must be corrected.
Electricity – Home must have electricity for lighting and necessary equipment such as heating and cooling systems.
Access – Home must be accessible from a public or private street and the living spaces must be independent of any others (no shared/common living spaces). General access rules require that the home’s various spaces should be accessible without entrance through another’s living spaces. Homes must have access to exterior walls for the purpose of maintenance.
Health and Safety Hazards – Probably the broadest of the VA loan minimum property requirements, this section covers the health and safety of the occupants. Homes should be free and clear of anything that could be seen to adversely affect the health and safety of the occupants, the structural integrity of the home, or keep the owners from use and enjoyment of their property. These requirements cover everything from defective conditions of the property and drainage to wood destroying insects and lead based paint.
Manufactured Homes – Manufactured homes must be attached to a permanent foundation.
The overall goal of the VA loan minimum property requirements (MPRs) is to ensure the general safety of the veteran while using their property and that the basic needs of housing are met. Most of the requirements are basic human needs and are common with any government backed loan or assistance programs. If a home does not meet these minimum requirements, the buyer can negotiate with the seller to try and cure the defects and the lender will require evidence that they have been taken care of before fully approving and moving forward with the loan. This can be a bit of a paperwork and document nightmare for those involved, but with a bit of determination, it can be done.
Have questions about real estate specific to your needs as a veteran? We have many agents that specialize in helping veterans with their housing needs, both for lease and for sale – whether temporary housing during training or more permanent housing after being stationed in the area.
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How Credit Can Affect Your Ability to Buy a Home
Credit is the one word we can think of that no one really likes. People with good credit, people with bad credit – everyone gets a little nervous when they think about the magical number determined by a secret algorithm that sums up your entire financial life in one go. The FICO credit score, the defacto standard for scoring your financial well being, is shrouded in myth and mystery and affects just about everything you do in life. And when it comes to real estate, your score is one of the biggest determining factors in whether you’ll be renting or buying your next home. So what can you do to keep your score healthy and happy so that you can move into home ownership? While there is no perfect answer for everyone, there are certain items you should be aware of that will help keep those numbers up so that you can buy a home.
Paying your bills on time. We all slip from time to time and forget to pay a bill by its due date. Whether it’s because you just didn’t have the money until a few days after the due date or it simply slipped your mind, you need to pay your bills on time. Banks look to this factor to see that you have the discipline and structure to keep up with payments. Not only does it affect your credit score, but when a lender looks at your full credit report and sees consistent or frequent late payments, they start to wonder if you’re a credit risk. The website Credit Karma shows that people with fair to excellent credit scores pay their bills on time more than 95%. As credit scores go down, so does the rate of on time payment – FICO scores of 500-599 report 75% on time payment rate, while scores under 500 report 60% on time payment rates.
Debt to income ratios. You debt to income ratio is the balance of what’s coming in and what’s owed. Have large debts and a small income? Not good. How do you figure out your ratio? Take the total of your monthly debts (rent/mortgage, car payments, credit card payments, other loans, etc.) and divide it by your gross (not net) monthly income. Convert the decimal to a percentage (move the decimal two places to the right) and you now know your debt to income ratio. All lenders differ on what they look for, but most avoid anything over 30% and 40% is considered very high. The higher that ratio goes, the higher the risk for you to repay the loan you’re trying to apply for.
Credit Cards vs. Mortgage Debt Although it won’t help the first time home buyer, having a mortgage can actually be a boost to your credit. Things like student loans and mortgage loans are often weighted differently because of their purpose, whereas credit card debt can be seen as a negative, because we use those to buy things without any real value. That’s not to say that credit cards are bad, you just have to be careful how you use them and how many and how much you have available.
Speaking of credit cards… There are a couple of issues with them that you’ll need to watch out for. First, don’t max them out. Second, don’t have too much or too little credit available. Third, you want to have a strong history with those credit cards, from paying them in a timely fashion and not carrying a large balance to not coming near your spending limits. Credit card debt is one of the trickier items to understand, because each piece of the puzzle affects the larger whole.
Cash. Having a reserve fund can help balance things out when you sit down with a lender. Not only will you need cash for your down payment, but lenders want to see reserve funds so that you can weather any bumps in the road ahead. Cash can sometimes make up for slightly lower credit scores as well.
Your Credit Score is a Complex Thing
These are just some of the issues affecting your your ability to get a loan to purchase a home. The best way to really understand your personal situation is to sit with a local lender and have them take a look. Not only will they pull the report and ask questions about your income and debts, but they will also take a look at the entire picture as a whole in order to come up with the best plan of action for you. Sometimes it makes sense to wait, sometimes you’re ready then and there, but they can help give you the info and knowledge you need, plus they can help you see some of the things you could do to improve your credit score for both the short and long term that could help get you to where you want to be.
If you need recommendations for a quality, local lender who can analyze your situation and build an action plan for you, contact and one of our agents and they can help you find the lender that best suits your needs.
image courtesy of Jigme Datse