When it comes to buying a home, it can feel a bit intimidating to know how much you need to save and where to find that information. But you should know, you’re not expected to have all the answers yourself. There are many trusted professionals who can help you understand your finances and what you’ll need to budget for throughout the process.
To get you started, here are a few things experts say you should plan for along the way.
1. Down Payment
As you set your savings goal for your purchase, your down payment is likely already top of mind. And, like many other people, you may believe you need to set aside 20% of the home’s purchase price for that down payment – but that’s not always the case. The National Association of Realtors (NAR) says:
“One of the biggest misconceptions among housing consumers is what the typical down payment is and what amount is needed to enter homeownership. Having this knowledge is critical to know what to save . . .”
The good news is, you may be able to put as little as 3.5% (or even 0%) down in some situations. To understand your options, partner with a trusted professional who can go over the various loan types, down payment assistance programs, and what each one requires.
2. Earnest Money Deposit
Another item you may want to plan for is an earnest money deposit. While it isn’t required, it’s common in today’s highly competitive market because it can help your offer stand out in a bidding war.
So, what is it? It’s money you pay as a show of good faith when you make an offer on a house. This deposit works like a credit. You’re using some of the money you already saved for your purchase to show the seller you’re committed and serious about their house. It’s not an added expense, it’s just paying some of that up front. First American explains what it is and how it works:
“The deposit made from the buyer to the seller when submitting an offer. This deposit is typically held in trust by a third party and is intended to show the seller you are serious about purchasing their home. Upon closing the money will generally be applied to your down payment or closing costs.”
In other words, an earnest money deposit could be the very first check you’ll write toward your purchase. The amount varies by state and situation. Realtor.com elaborates:
“The amount you’ll deposit as earnest money will depend on factors such as policies and limitations in your state, the current market, what your real estate agent recommends, and what the seller requires. On average, however, you can expect to hand over 1% to 2% of the total home purchase price.”
Work with a real estate advisor to understand any requirements in your local area and what they’ve recommended for other buyers in your market. They’ll help you determine if it’s something that could be a useful option for you.
3. Closing Costs
“The upfront fees charged in connection with a mortgage loan transaction. …generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney’s fee, and prepaid items, such as escrow deposits for taxes and insurance.”
Basically, your closing costs cover the fees for various people and services involved in your transaction. NAR has this to say about how much to budget for:
“A home costs more than just the sale price. For example, closing costs—which make up about 2% to 5% of the home’s purchase price—are a major added expense…Lenders provide a Closing Disclosure at least three business days prior to closing on a mortgage. But buyers will need to budget for these added costs ahead of time to avoid sticker shock days before closing.”
The key takeaway is savvy buyers plan ahead for these expenses so they can come into the process prepared. Freddie Mac sums it up like this:
“If you’re in the market to buy a home, your down payment is probably top of mind. And rightly so – it’s likely the biggest cost of homebuying. However, it is not the only cost and it’s critical you understand all your expenses before diving in. The more prepared you are for your down payment, closing and other costs, the smoother your homebuying journey will be.”
Knowing what to budget for in the homebuying process is essential. To make sure you understand these and any other expenses that may come up, partner with a real estate advisor for expertise on what to expect when you buy a home.
Since the number of homes for sale is low today, it can feel challenging to find one that checks all your boxes. But if you know which features are absolutely essential in your next home and which ones are just nice bonuses, you can land a home that fits your needs.
Danielle Hale, Chief Economist for realtor.com, explains it like this:
“Focus on the goal you set out for yourself, like your list of must-haves and nice-to-haves and your budget, . . . Stick to that. Be persistent.”
So how do you go about creating your list of desired features? The first step is to get pre-approved for your mortgage. Pre-approval helps you better understand your budget, and that plays an important role in how you’ll craft your list. After all, you don’t want to fall in love with a home that’s too far out of reach.
Once you have a good grasp of your budget, you can begin to list all the features of a home you would like. Here’s a great way to think about them before you begin:
- Must-Haves – If a house doesn’t have these features, it won’t work for you and your lifestyle (examples: distance from work or loved ones, number of bedrooms/bathrooms, etc.).
- Nice-To-Haves – These are features that you’d love to have but can live without. Nice-To-Haves aren’t dealbreakers, but if you find a home that hits all the must-haves and some of the these, it’s a contender (examples: a second home office, garage, etc.).
- Dream State– This is where you can really think big. Again, these aren’t features you’ll need, but if you find a home in your budget that has all the must-haves, most of the nice-to-haves, and any of these, it’s a clear winner (examples: farmhouse sink, multiple walk-in closets, etc.).
Finally, once you’ve created your list and categorized it in a way that works for you, discuss it with your real estate advisor. They’ll be able to help you refine the list further, coach you through the best way to stick to it, and find a home in your area that meets your needs.
Crafting your home search checklist may seem like a small task, but it can save you time and money. It’s also one of the keys to being successful in today’s competitive market. Connect with a real estate professional so you can work together to find a home that fits your wants and needs.
As we celebrate Black History Month, we honor and recognize the past and present experiences of Black Americans. A significant part of this experience is investing in a home of their own. While equitable access to housing has come a long way, the path to homeownership is still steeper for households of color. It’s an important experience to talk about, along with how working with the right real estate experts can make all the difference for diverse homebuyers.
We know it’s a more challenging journey to achieve homeownership for some because there’s still a measurable gap between the overall average U.S. homeownership rate and that of non-white groups. Today, the lowest homeownership rate persists in the Black community (see graph below):
Homeownership is an essential piece for building household wealth that can be passed down to future generations. However, there are obstacles in the homebuying process that can negatively impact certain racial and ethnic groups, including the Black community. This can delay or prevent many from achieving homeownership, challenging their ability to grow their net worth. A report by Vanessa G. Perry of the George Washington University School of Business and Janneke Ratcliffe of the Urban Institute explains:
“. . . households of color have much lower homeownership rates than white households and consequently hold, at the median, just one-eighth the wealth of white households.”
On top of that, when Black households do become homeowners, research shows they pay more for those homes overall than the average household. Raheem Hanifa, a Research Analyst for the Joint Center for Housing Studies of Harvard University, tells us:
“Black homeowners not only have primary mortgages with higher interest rates than white homeowners with similar incomes, they also have higher interest rates than white homeowners with substantially lower incomes, . . . Black homeowners have experienced systemic barriers to homeownership and wealth-building opportunities that have limited their ability to access credit, which is a key component in receiving low mortgage interest rates.”
For Black homebuyers, the inequity that remains in housing can be a point of pain and frustration. That’s why it’s so important for members of diverse groups to have the right team of experts on their sides throughout the homebuying process. These professionals aren’t only experienced advisors who understand the market and give the best advice. They’re also compassionate allies who will advocate for your best interests every step of the way.
Opportunities in real estate improve every day, but there are still equity challenges that many face. Let’s connect to make sure you have an advocate on your side as you walk the path to homeownership.
If you’re looking to buy a home, you may be wondering how your student loan debt could impact those plans. Do you have to wait until you’ve paid off your student loans before you can buy your first home? Or could you qualify for a home loan with that debt?
To give you the answers you’re searching for, let’s take a look at what recent data shows. That way, you know what to expect and what to do next to achieve your dream of becoming a homeowner. While everyone’s situation is unique, your goal may be more within your reach than you realize.
Do you have to delay your plans because of student loans?
If you’re worried your student loans mean you have to put your homeownership goals on hold, you’re not alone. In fact, many first-time buyers believe they have to delay their plans. According to data from the National Association of Realtors (NAR):
“When asked specifically about purchasing a home, half of nonhomeowners say student loan debt is delaying them from purchasing a home (51%).”
When asked why their student loans are putting their plans on the back burner, three key themes emerged:
· 47% say their student loans make it harder to save for a down payment
· 45% say they think they can’t qualify for a home loan because of existing debt
· 43% say they believe the delay is necessary even though they’ve never applied for a mortgage
No matter which reason resonates most with you, you should know a delay may not be necessary. Here’s why.
Can you qualify for a home loan if you have student loans?
In the same NAR report, data shows many current homeowners have student loan debt themselves:
“Nearly one-quarter of all home buyers, and 37% of first-time buyers, had student debt, with a typical amount of $30,000.”
That means other people in a similar situation were able to qualify for and buy a home even though they also had student loan debt. You may be able to do the same, especially if you have a steady source of income. Apartment Therapy drives this point home:
“. . . buying a home with student loans is possible, experts say. The proof is in the numbers, too: Some 40 percent of first-time homebuyers have student loan debt, according to the NAR study.”
The key takeaway is, for many people, homeownership is achievable even with student loans.
The best way to make a decision about your goals and next steps is to talk to the professionals. A real estate advisor can walk you through your specific situation, your options, and what has worked for other buyers like you. They can also connect you with other professionals in the industry who can help. You don’t have to figure this out on your own – lean on the experts so you have the information you need to make an informed, confident decision.
Many other buyers with student loan debt are already achieving their homeownership dreams. Maybe it’s time to take the next step toward making yours a reality. Let’s connect to discuss your options and find out how close you are to achieving your goal.
In today’s sellers’ market, many homeowners are weighing their options and trying to decide if they should sell their house. If you’re in that group, you may be balancing things like the ongoing health crisis, rising mortgage rates, and your own changing needs to determine your best time to make a move.
Looking back over the past few years, its clear consumers are incredibly optimistic today. The graph below shows the percent of survey respondents who say it’s a good time to sell a house, and their positive outlook is on the rise. The big dip near the middle of the chart indicates how consumer sentiment about selling dropped at the beginning of the pandemic as uncertainty about the health crisis and its impact grew. The good news is, the trend today shows a continued, drastic improvement, and people are feeling more and more confident with time about selling a home.
In fact, survey respondents think it’s an even better time to sell a house today than they did in the lead-up to the health crisis. The latest survey results indicate we’re at one of the strongest peaks in seller sentiment since March of 2019, hitting highs when 77% of people thought it was a good time to sell only twice before in June and October of 2021.
Why Are Consumers So Optimistic About Today’s Housing Market?
From record-high equity gains to record-low housing supply and significant buyer demand, homeowners have more motivation than ever to sell. There are more buyers in today’s market than there are homes for sale, and that’s driving home prices up, making it a great time to sell your house.
According to the National Association of Realtors (NAR), the current supply of homes for sale today is at a 1.8-month supply, which is an all-time low. When the supply of homes for sale is low, sellers will likely see more offers, which is exactly what’s happening right now. As NAR notes:
“The average home for sale is receiving 3.8 offers today, up from 3.3 offers just one year ago.”
With the inventory of houses for sale so low today pushing home prices in an upward direction, it’s no wonder consumers think it’s a good time to sell. If you’re ready to take advantage of today’s favorable sellers’ market, let’s connect today.
If your needs are changing, you may be thinking about sharing a home with additional loved ones, such as grandparents, adult children, or other extended family members. Whether it’s for financial or health-related circumstances, or simply because you’ve reached a new phase of life, you might be wondering if living with multiple generations under the same roof is a good move for you. Many people have found themselves in a similar situation and they’ve already made the choice to live in a multigenerational home.
What Is a Multigenerational Home?
The Pew Research Center defines a multigenerational household as a home with two or more adult generations. They include households with grandparents and grandchildren under the age of 25. As you weigh your options and decide if multigenerational living is right for you, here’s some helpful information highlighted by other homeowners living with additional loved ones.
The Benefits of Multigenerational Living
A recent report from Generations United surveyed individuals living in a multigenerational setting and asked them about the key benefits of this housing arrangement. It says:
“Nearly all Americans who live in a multigenerational household (98%) feel their household functions successfully, citing various aspects of home design, family relationships and interactions, and supports and services influencing their success.”
The study identifies some of the top benefits of this lifestyle as an improved financial situation, better mental and physical health, strengthened bonds with loved ones, and more (see chart below):
Those are just some of the reasons why most people who decide to live in this situation find it worthwhile. As Donna Butts, Executive Director at Generations United, says:
“Families may come together from need, but they are staying together by choice. Indeed, more than 7 in 10 (72 percent) of those currently living in a multigenerational household plan to continue doing so long-term.”
With More Adults Living Under One Roof, You May Need More Space
If you decide to look for a multigenerational home, it’s important to understand what everyone will need to make the arrangement work to its fullest. Something that often makes the top of the list for homeowners living with multiple generations is additional space for privacy. This could mean more bedrooms and bathrooms or features like an in-law suite or a basement.
If you’re realizing your current house doesn’t provide the room you need for multigenerational living, an expert real estate advisor can help you navigate the process to find the right home that works for you and your loved ones.
Living in a multigenerational household has real and impactful benefits. If you’re interested in learning more about these options in our local area, let’s connect so you can find a home that fits your changing needs.
Mortgage rates have increased significantly since the beginning of the year. Each Thursday, Freddie Mac releases its Primary Mortgage Market Survey. According to the latest survey, the average 30-year fixed-rate mortgage has risen from 3.22% at the start of the year to 3.55% as of last week. This is important to note because any increase in mortgage rates changes what a purchaser can afford. To give you an idea of how rising mortgage rates impact your purchasing power, see the table below:
How Can You Know Where Mortgage Rates Are Headed?
While it’s always difficult to know exactly where mortgage rates will go, a great indicator of where they may head is by looking at the 50-year history of the 10-year treasury yield, and then following its path. Understanding the mechanics of the treasury yield isn’t as important as knowing that there’s a correlation between how it moves and how mortgage rates follow. Here’s a graph showing that relationship over the last 50 years:
This correlation has continued into the new year. The treasury yield has started to climb, and that’s driven rates up. As of last Thursday, the treasury yield was 1.81%. That’s 1.74% below the mortgage rate reported the same day (3.55%) and is very close to the average spread we see between the two numbers (average spread is 1.7).
Where Will the Treasury Yield Head in the Future?
With this information in mind, a 10-year treasury-yield forecast would be a good indicator of where mortgage rates may be headed. The Wall Street Journal just surveyed a panel of over 75 academic, business, and financial economists asking them to forecast the treasury yield over the next few years. The consensus was that experts project the treasury yield will climb to 2.84% by the end of 2024. Based on the 50-year history of following this yield, that would likely put mortgage rates at about 4.5% in three years.
While the correlation between the 30-year fixed mortgage rate and the 10-year treasury yield is clear in the data shown above for the past 50 years, it shouldn’t be used as an exact indicator. They’re both hard to forecast, especially in this unprecedented economic time driven by a global pandemic. Yet understanding the relationship can help you get an idea of where rates may be going. It appears, based on the information we have now, that mortgage rates will continue to rise over the next few years. If that’s the case, your best bet may be to purchase a home sooner rather than later, if you’re able.
Forecasting mortgage rates is very difficult. As Mark Fleming, Chief Economist at First American, once said:
“You know, the fallacy of economic forecasting is don’t ever try and forecast interest rates and or, more specifically, if you’re a real estate economist mortgage rates, because you will always invariably be wrong.”
However, if you’re either a first-time homebuyer or a current homeowner thinking of moving into a home that better fits your changing needs, understanding what’s happening with the 10-year treasury yield and mortgage rates can help you make an informed decision on the timing of your purchase.
Over the past two years, we’ve lived through one of the most stressful periods in recent history. Because of the health crisis, many of us have spent more time at home and that’s led us to re-evaluate both what we need in a house and how much we appreciate having a safe space. If you’ve found your current home isn’t filling all your needs, you may be wondering if it’s time to find a new one.
There’s reason to believe a change of scenery could boost your happiness. Catherine Hartley, an Assistant Professor at New York University’s Department of Psychology and co-author of a study on how new experiences impact happiness, says:
“Our results suggest that people feel happier when they have more variety in their daily routines—when they go to novel places and have a wider array of experiences.”
A move could be exactly the new experience you’ve been looking for. If that’s something you’re considering to better your lifestyle, here are a few things to keep in mind.
Approach Your Decision Thoughtfully and Explore Your Options
Buying and selling a home is a major life change, and it’s not a decision you should enter lightly. But, if you’re questioning whether or not a move would bring you more happiness, it’s important to explore if it’s the right choice for you.
To find out more and discuss your options, reach out to a local real estate professional. They’ll explain the process – including how to list your existing house and search for a new one – in clear and simple terms.
You should also think about your lifestyle and what you’re hoping to get out of your move. What needs aren’t being met in your current home? What features would bring you more joy and make your life easier? For example, are you now working remotely and need a home office? Do you crave more fresh air and open outdoor space to unwind in? Knowing the answers to these questions can help you get started and position your real estate advisor to work with you so you can find just the right home.
Consider a Location with Weather That Will Boost Your Mood
Home features aren’t the only thing to consider. You should also weigh your options when it comes to location. Is the weather something that’s important to you? Does it have a tendency to impact your mood? If it does, you may want to factor it into your next move. The World Population Review shares:
“What states have the best weather? When evaluating each state for temperature, rain, and sun, some states stand out. . . . Climate and weather preferences are personal and subjective. . . . “
Better weather can mean different things to different people. Some prefer the heat, others cooler temperatures, and some want to experience all four seasons. Think about what makes you feel happiest and prioritize that in your home search. If you’re moving to a whole new location, your agent is a great resource with a strong network to support you along the way.
Moving could provide you with a fresh beginning and the chance to find happiness in your new home. Let’s connect today to talk about your goals and options in the current market.