loans

How Much You Need To Save for a Down Payment?

February 9, 2023 by khproperties Leave a Comment

If you’re getting ready to buy your first home, you’re likely focused on saving up for everything that purchase involves. One cost that’s likely top of mind is your down payment. But don’t let a common misconception about how much you need to save make the process harder than it could be.

Understand 20% Isn’t Always the Typical Down Payment

Freddie Mac explains:

“. . . nearly a third of prospective homebuyers think they need a down payment of 20% or more to buy a home. This myth remains one of the largest perceived barriers to achieving homeownership.”

Unless specified by your loan type or lender, it’s typically not required to put 20% down. This means you could be closer to your homebuying dream than you realize. According to the National Association of Realtors (NAR), the median down payment hasn’t been over 20% since 2005. In fact, the median down payment today is only 14%. And it’s even lower for first-time homebuyers at just 6% (see graph below):

Learn About Options That Can Help You Toward Your Goal

If saving for a down payment still feels like a challenge, know that there’s help available. A real estate professional and trusted lender can show you options that could help you get closer to your down payment goal. According to latest Homeownership Program Index from Down Payment Resource, there are over 2,000 homebuyer assistance programs in the U.S., and the majority are intended to help with down payments.

Plus there are even loan types, like FHA loans, with down payments as low as 3.5%, as well as options like VA loans and USDA loans with no down payment requirements for qualified applicants.

To understand your options, be sure to do your homework. If you’re interested in learning more about down payment assistance programs, information is available through sites like Down Payment Resource. Then, partner with a trusted local lender to learn what you qualify for on your homebuying journey.

Remember, a 20% down payment isn’t always required. If you want to purchase a home this year, talk to one of our agents. You’ll also want to make sure you have a trusted lender so you can explore your down payment options.

Pre-Approval in 2023: What You Need To Know

February 3, 2023 by khproperties Leave a Comment

One of the first steps in your homebuying journey is getting pre-approved. To understand why it’s such an important step, you need to understand what pre-approval is and what it does for you. Business Insider explains:

“In a preapproval, the lender tells you which types of loans you may be eligible to take out, how much you may be approved to borrow, and what your rate could be.”

Basically, pre-approval gives you critical information about the homebuying process that’ll help you understand your options and what you may be able to borrow.

How does it work? As part of the pre-approval process, a lender will look at your finances to determine what they’d be willing to loan you. From there, your lender will give you a pre-approval letter to help you understand how much money you can borrow. That can make it easier when you set out to search for homes because you’ll know your overall numbers. And with higher mortgage rates impacting affordability for many buyers today, a solid understanding of your numbers is even more important.

Pre-Approval Helps Show You’re a Serious Buyer

Another added benefit is pre-approval can help a seller feel more confident in your offer because it shows you’re serious about buying their house. A recent article from Forbes notes:

“From the seller’s perspective, a preapproval [sic] letter from a reputable local lender often can make the difference between accepting and rejecting an offer.”

This goes to show, even though you may not face the intense bidding wars you saw if you tried to buy during the pandemic, pre-approval is still an important part of making a strong offer. In fact, Christy Bieber, Personal Finance Writer at The Motley Fool explains it may be the most important part of making an offer:

“Pre-approval maximizes the chances you’ll be able to actually close the deal – and sellers want to see that.

The fact that a pre-approval gives you a better chance of getting your offer accepted is undoubtedly the most important reason to complete this step…”

Get a Pre-Approval

Getting pre-approved is an important first step towards buying a home. It lets you know what you can borrow and shows sellers you’re serious about purchasing their home. Connect with a local real estate agent and a trusted lender so you have the tools you need to purchase a home in today’s market.

Waiting For Low Mortgage Rates?

January 28, 2023 by khproperties Leave a Comment

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.

Which Down Payment Strategy is Right for You?

April 10, 2019 by khproperties Leave a Comment

You’ve most likely heard the rule or had one of your friends give you the advice: save for a 20 percent down payment before you buy a home. The logic behind saving 20 percent is solid, as it shows that you have the financial discipline and stability to save for a long term goal. As with any financial plan, you have to look at the pros and cons and determine which benefits you more both in the short and long term. It is always advisable to discuss with your lender and your CPA to see where and how you can maximize the benefits.

Larger down payments can help you get favorable rates from lenders, but there can actually be financial benefits to putting down a smaller down payment, something as low as three and a half percent, rather than parting with so much cash up front, even when you have the extra money available.

THE DOWNSIDE

The downsides of a smaller down payment are pretty well known. You’ll have to pay Private Mortgage Insurance for years and the lower your down payment, the more you’ll pay. You’ll also be offered a lesser loan amount than borrowers who have a 20 percent down payment, which will eliminate some homes from your search.

THE UPSIDE

The national average for home appreciation is about five percent. The appreciation is independent from your home payment, so whether you put down 20 percent or three and a half percent, the increase in equity is the same. If you’re looking at your home as an investment, putting down a smaller amount can lead to a higher return on investment, while also leaving more of your savings free for home repairs, upgrades, or other opportunities.

THE HAPPY MEDIUM

Of course, your home payment options aren’t binary. Most borrowers can find some common ground between the security of a traditional 20 percent and an investment focused, smaller down payment. Your real estate agent can provide some answers and introduce you to a lender as you explore your financing options. Sitting down with the lender and discussing the finer details of your goals and your plans can help you make the best decision for you at this particular point in your life.

image courtesy of Mukumbura

The Lender Wants What? Don’t Let Paperwork Discourage You

February 5, 2018 by khproperties Leave a Comment

You’ve found the home of your dreams, got it under contract, and are working with your lender to gather all of the documents they need to make your loan happen. It’s all going perfectly and you’re getting more and more excited by the day. Then the loan hits underwriting and suddenly you feel like you’re buried in paperwork requests. They need copies of this, letters explaining that, printouts of bank account statements from years ago – they ask for strange things that don’t seem related. It becomes a deluge of requests and you feel like just giving up – no house is worth all this paperwork, is it?

It can be discouraging to have to sift through all of your documents and scanning and sending and resending, but all of that paperwork is leading to your new home. Lenders will request things once, twice, three times…it can be a bit frustrating. The underwriter’s job is to mitigate the lender’s risk and part of that involves creating a papertrail so that there are no doubts about what they see when they look at your financial picture. Often it seems like they’re just harassing you, but they are just creating a file that documents why they felt it was an acceptable risk to give you that loan.

Prepare Paperwork for Your Lender in Advance

While you’ll never be able to predict everything the lender will ask you for, you can start preparing the paperwork long before you apply for the loan. Gather your bank statements, pay stubs, tax documents, loan information – anything reflecting your income and your debts. If you have some outstanding issues, know what they are. You can get a free copy of your credit report through www.annualcreditreport.com and check for anything that might show up. Do a household budget (you’ll be surprised where you can save some money!). The more documentation you have prepared, the better.

When the lender starts asking for paperwork, turn it in quickly. It can get a bit frustrating when they ask you for the same thing you’ve turned in 10 different times – just take a breath and resend it. The quicker you turn those items in, the quicker someone can review them. Sometimes there will seem that there is no rhyme or reason to what they’re asking, but to them it makes perfect sense. Don’t question it, just send it in and ask if they need anything else.

image courtesy of isaacbowen

Loan Underwriting Doesn’t Need To Be A Complete Mystery

December 22, 2015 by khproperties Leave a Comment

If you’ve ever bought a house, you’re probably familiar with hearing “your loan is in underwriting” and then playing the waiting game until it “comes out of underwriting.” It’s one of the steps in the process of getting a loan and often one of the most frustrating. But what exactly is underwriting?

According to the information given by a loan service (check out their company site), underwriting is viewed as a mystical place where loans go somewhere between the time of preapproval and final issuance of the loan documents. Underwriters are kept in secret and you’d be surprised to know that many real estate agents have never met an underwriter face to face (or if they did, they didn’t know it). Loan underwriting is truly a world shrouded in mystery and for good reason – if we all knew our underwriters, it would be very easy for agents to poke and prod an underwriter to get things done. Underwriters would be under a daily assault of phone calls from agents trying to find out where they were in the process and in effect, would be rendered unable to do much more than answer the telephone. This is why lenders keep them locked away in dark caves in highly classified locations.*

Merriam-Webster Online Dictionary defines underwriting as follows:

underwriting – transitive verb
4 a : to agree to purchase (as security issue) usually on a fixed date at a fixed price with a view to public distribution b : to guarantee financial support of (underwrite a project)

What’s Taking So Long? Underwriting.

To put it simply as suggested by Derwent Finance, the underwriter looks at all the supporting documents and says “yes, I think this is a safe loan to make, let’s do it.” Of course they can say the opposite too. This is how some people get preapproved, yet wind up getting turned down for a loan. The underwriter is pretty much all powerful when it comes to you getting your loan. Because of their ultimate power, you and your real estate agent need to pay special attention during the underwriting process.

According to my friend, who wrote a recent Kiva loans review, it all boils down to this: if the underwriter asks for something, you as a homebuyer, better do it. They will ask for ridiculous things at times. Doesn’t matter. They’ll ask for copies of things you’ve sent them four times already. Doesn’t matter. They’ll ask you to move a comma in a sentence in a document you have sent to them. Doesn’t matter. They’ll ask for more information on something you’ve already documented to death. Doesn’t matter.

Underwriting is about the lender covering all their bases – all that documentation you send in stays in a file and if something ever goes wrong (you default on your loan), the investor will want the lender to justify their underwriting of the loan such as poor credit loans.

Underwriting can be a nightmare for a homebuyer (and a seller as well – the longer underwriting takes, the more nervous they become), but by being proactive and jumping through the hoops, you can get your loan in and out much faster and save some of the headaches caused by underwriting. Typically, your agent will also know what the underwriter needs to complete their job, so they may bug you about it too – the key? Get it done. Right away. Don’t put it off and don’t frustrate yourself with trying to find the answer to “why are they asking for this?,” they have their reasons and it doesn’t really matter what they are (although we can discuss them to death, the underwriter will still want them).

Of special note: it pays to have a local lender for your loan, because they often have better, more direct contact with their underwriting departments and can often help a file through the process by being able to have direct access to the underwriter should a problem arise. With some of the larger banks, their loan processing centers might be halfway across the country and you lose that personal one-on-one interaction between your loan officer and underwriter that can help get things done.

* We have no actual proof that lenders keep underwriters locked in caves or that underwriting is actually an ancient mystic art involving a combination of wizardry and voodoo.

image courtesy of GotCredit