Consider this a gift to home buyers: Mortgage interest rates dipped to 3.78% this week, just in time for the spring housing market.
For people who are in the process of buying a house, our best advice is to lock in your rate now. “This is the last call before the bar closes at these historically low levels,” saidJonathan Smoke, chief economist at realtor.com®.
Currently, rates are low, but they are expected to rise. On Wednesday the Federal Reserve issued its first warning that rates will increase in the near term, because the economy has stabilized. The Fed has been propping up the economy by keeping rates at zero since late 2008, when the housing market collapsed. Now that employment is up, gas prices are low, and consumers are feeling more confident about the future, interest rates are sure to rise. Observers expect the Fed action to happen as early as June.
“From here, rates should go up more than down, which means affordability declines rapidly,” Smoke said. “It also means that navigating mortgage choices becomes simultaneously more important , but also more complex as higher rates would cause qualifications to be harder and some options will fall off the table.”
It goes to reason that as interest rates increase, affordability decreases. Home prices are rising and now that rates are indicated to follow suit, your buying power will not be as great as it once was. These are the waning days of remarkably low rates.
According to the Freddie Mac Primary Mortgage Market Survey:
- 30-year fixed-rate mortgage averaged 3.78%, down from last week when it averaged 3.86%. A year ago at this time, it averaged 4.32%.
- 15-year FRM this week averaged 3.06%, down from 3.1% last week and 3.32% last year at this time.
- 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 2.97%, down from last week when it averaged 3.01%. It averaged 3.02% last year this time.
- 1-year Treasury-indexed ARM averaged 2.46%, unchanged from last week. At this time last year, it averaged 2.49%.
We all want to be smart about refinancing our mortgage. Done right, it can save thousands of dollars in interest and lower your monthly mortgage payment. Done wrong, it can be a money loser if you have to sell. So don’t just pay attention to interest rates—follow these six refinancing rules to know when and how you should refinance.
1. Be a half-percenter
There used to be a rule of thumb that said to refinance only when you could shave at least 1% off your interest rate. But with today’s ultralow interest rates, that rule has gone the way of the VCR. Today, the ability to shave your interest by half a percentage point is a viable option.
But don’t go chasing interest rates with refinancing—you shouldn’t refinance more than two or three times during your loan.
2. Get rid of mortgage insurance
You can refinance your Federal Housing Administration loan into a different mortgage to shed any FHA premiums.
Many FHA loans require mortgage insurance for the life of the loan. For example, if you have a 30-year FHA loan and put less than 10% down—a common move for FHA borrowers—you would be expected to pay premiums for the life of the loan. Other nongovernment loans (except Veterans Affairs loans) may require private mortgage insurance, which can be canceled after you reach 20% equity in your home.
And although the FHA recently dropped rates, paying a monthly premium when you have decent equity built up isn’t desirable. Plus, the FHA could always increase its rates in the future. Just be sure to compare your new PMI rates with your old premiums to see how much you’ll save.
3. Counteract same-length loans
After five years of homeownership, refinancing one 30-year mortgage into another 30-year mortgage isn’t always the right move, even if you save money on a rate reduction. You can save money on a monthly basis, but you’re also resetting the mortgage clock and adding another five years to the life of your loan.
To reduce the pain, try to pay a little extra toward your new mortgage each month. Any extra money you pay will go toward your principal, which will build you equity faster and reduce the total amount paid on interest.
4. Leverage your current financial power
You should also consider shorter loan lengths if your financial situation has improved.
For example, say you have had a 30-year FRM of $350,000 at a 4.7% interest rate for five years. After five years of on-time payments, you owe $320,000 on your mortgage.
If you refinance that $320,000 into a 15-year FRM with an interest rate of 3%, you’ll pay $602 more per month—but after 15 years, you’ll own your home outright. You’ll also have saved $218,419 in interest payments.
It’s not the right situation for everyone, but crunch the numbers to see how much a shorter loan could save you in the long run.
5. Know when you’ll recoup costs
Because refinancing comes with closing costs, you can determine when you’ll be able to recoup those costs with your monthly savings.
For example, say you spent $5,000 in closing costs to refinance and your new mortgage saves you $250 a month. It’ll take you 20 months before you recoup your closing costs and actually begin saving money. If you can recoup those costs in less than five years—preferably within three years—of a refinance, you’ve made a good deal.
This is especially important if you are considering selling. In the above example, if you sell within that 20-month time frame, it’s a money-losing proposition.
6. Always shop around
Don’t just go to your old lender for a refinancing package. It pays to shop around—don’t assume because rates are at all-time lows that they’ll be the same every place you look. Rates can differ substantially among lenders when there are lots of people shopping for a new mortgage.
Buying a House can be a scavenger hunt -- or a feeding frenzy -- depending on where you live.
Nationally, home prices were up a little over 5% last year, and Fannie Mae Chief Economist Douglas Duncan expects about a 4.5% average increase this year.
Overall, in spite of the challenges, there seems to be a sense of optimism in the market.
"I think the optimism is reasonable," Duncan says. "For people who are credit qualified -- and that's the critical issue -- if they have good credit, and they're interested, in most markets they'll be able to find something that will suit their needs."
Duncan says that while the real estate industry lost a little ground in home sales last year as sales softened due to a spike in mortgage rates, this year should see a bit of improvement.
"We think 2015 will be up 5 to 6% -- that means it will be higher than 2014 and 2013, but we think that those folks who are looking for a real breakout year are probably going to be disappointed," he adds.
The spring housing market
Susan Wachter, professor of real estate and finance at Wharton, has a similar outlook and expects single-digit price appreciation. The allows sellers to get sizable returns but lets buyers wade into the market at reasonable prices.
"Despite the fact that housing prices have increased, in many markets they're still below where they were at the peak in 2006," agrees Susan Wachter, professor of real estate and finance at Wharton, expecting single-digit price appreciation. "I do see prices continuing to increase at a moderate pace, certainly not the pace of a year or so ago. And I do see construction activity across the board, not simple multi-family but also single family -- I see it coming back, but slowly."
That said, the housing recovery will be slow-going; Wachter expects housing growth to lag the overall economy.
"It doesn't yet have the big engine of growth behind it, which is the three million or so households who are missing," she said.
As such, Wachter is looking for an uptick, but not a surge in real estate sales this spring.
"I think that many buyers will be coming out," she says. "The economy has been improving, consumer confidence rising, the stock market essentially at an all-time high. I do anticipate buyers to check the market out. The key choke point is the inventory. Are we going to have enough inventory to satisfy the market?"
Location, Location, Location
Of course, the extent of buying fanfare really depends on the market.
"There has been a great deal of multiple offers and bidding up properties," says Sue Brodie, with 30 years in the real estate business in Seattle. Residential listings are on the market for an average of 30 days, she says, but in some areas it's less than seven days.
The fastest she's seen a house sell?
"Oh, same day,” she tells MainStreet. “People have been waiting for either that neighborhood, that price-point, or that area near a school they want. So, as soon it becomes available their agent alerts them. They're on kind of an on-call basis."
Contrast that with Wade Treadway's home market in Vermont. Based in Woodstock, he's been in the business for 20 years. Forget listings selling in hours; he has seen houses that have been on the market for years.
"Some people come into the marketplace and go, 'Gee, that place has been on the market for four or five years,' and my reaction is 'Well, you can take three of those years and throw them away because if nobody is here looking, that's not an active marketplace.'"
The roadblock to homeownership
America’s housing market is a study in contrasts. Hot here, in-recovery there. Meanwhile, the percentage of first-time homebuyers hit a 20-year low last year. One reason: It has been hard to qualify for a loan.
"The ratcheting-up of lending standards across the board is so dramatic -- we are so beyond historic norms in our criteria for first-time homeownership. It is putting the squeeze on potential buyers,” Wachter tells MainStreet. "There have been zero net new homeowners, essentially since 2006. It's all a reflection of the unsettled state of housing finance in this country."
Of course, Wachter notes, housing finance right now is basically another branch of government -- particularly for first-time homeowners.
"It's FHA, Fannie and Freddie," she said. "And Fannie and Freddie standards have ratcheted-up so tremendously, so 740 is a typical [credit] score you need for a Fannie or Freddie underwritten loan. That's way beyond historic norms."
Combine tougher lending standards with stagnant income growth and the result: a roadblock to homeownership, especially for Millennials.
"Their unemployment rate is higher than the same age-group would have seen a decade ago,” says Fannie Mae Duncan. “And their real, adjusted household income is actually significantly lower than it would have been a decade ago. Today, demand weakness trumps credit tightness."
In terms of obstacles in the housing market, there has been a lot of discussion about the fact that credit is tighter than it was, and it certainly is.
"But if you look at how big a factor [credit tightness] is compared to the lack of demand because of income growth, it's actually demand weakness that is a bigger factor than credit tightness, in our view today," Duncan says.
A window of opportunity
But assuming they can qualify for financing, buyers may find a window of opportunity now, before homes prices edge even higher.
"I think there is an improved chance to get in if they lower their expectations in terms of price-point," Lawrence Yun, chief economist with the National Association of Realtors, told MainStreet. "So, rather than trying to go for their dream home, go for a starter home that may require some repairs."
And lenders may be finally loosening those standards ever so slightly, opening the door just a crack to first-time buyers. One sign: the recent move by the FHA to lower mortgage insurance premiums, the price a buyer pays for the FHA to insure a loan for lenders.
"That will help some people on the margin," Yun says. "And some of the Fannie and Freddie-backed mortgages, which are predominant in the marketplace, appear to be easing modestly compared to last year. But we are not back to normal in any sense. So it's just about moving the dial a little more towards normal."
Build it and they will come
But America has been under-producing new homes for years. In fact, for the past seven years total units built have averaged 750,000 annually, essentially half of the normal rate of construction.
Yun says that for the nation to be under-producing homes -- not just for one or two years, but for seven consecutive years -- has created a dire lack of inventory.
"Builders need to greatly ramp up production to satisfy demand and they're not doing that," Yun says. He believes there are two factors holding builders back: a labor shortage and a lending crunch. "Builders are saying that it is very difficult to find qualified construction workers. During the housing market bust many construction workers left the industry and never came back. And the second factor -- which may be even more important -- is that local builders require construction loans from local lenders and that has been extremely difficult, post financial-market crisis."
Not only has credit been a hurdle for builders, but Fannie Mae’s Duncan singles out another issue.
"To survive the crisis, a lot of builders had to either release their options on land or sold land to maintain liquidity in order to stay afloat, so (now) they'll have to reacquire land. And then they have to get permitting, and in some areas of California that can take over three years." he says.
In spite of all of these factors, Fannie Mae expects to see a boost in building. "We expect that construction to be up something on the order of about 18% this year, both single-family and multi-family and manufactured housing," Duncan says. "But in some markets, that probably will only keep pace with the current level of demand."
Finding the buyer's markets
That real estate inventory shortage is leading to too many buyers chasing too few properties. In some markets -- Yun mentions Boston, Seattle and San Francisco in particular -- that's leading to bidding wars. "It's an unfortunate side effect of not having the necessary new home construction and everyone is fighting for existing inventory," he adds.
However, buyer's markets do exist in the U.S., but usually in cities with poor employment growth and in areas where there weren't significant price declines. Yun points to the industrial Midwest including the Great Lakes states, particularly Wisconsin, Illinois, Indiana, Michigan and Ohio. Home prices in these states are “very affordable” and inventory is adequate to meet demand. New England -- outside of Boston -- including upstate New York, Vermont, New Hampshire, Maine and Connecticut are also buyer's markets in Yun's view. Opportunities for buyers may also open up in Texas and Louisiana because of low oil prices.
"Whether or not the individual who is interested in an affordable house can find a job in those markets, that's the question," Duncan adds.
"Actually, in many markets it's cheaper to own than to rent,” Wachter notes. “Particularly with today's interest rates. We don't know with mortgage rates going forward, but at today's historically low mortgage rates, it's cheaper to be an owner -- that's the conundrum."
Meanwhile, the real estate market is improving in the Sunbelt states. Yun mentions Atlanta, Charlotte, Raleigh-Durham and Nashville. And Florida is regaining the retiree market. And home building is on the upswing in the Southern states, so inventory is also improving.
Price trumped all in the real estate market across Southern California in February, a recurring dynamic that had a hand in keeping a clamp on sales, according to a new real estate report.
The CoreLogic DataQuick report Tuesday says the median price of 2,349 homes sold in Riverside County was $305,000, up 7 percent from $285,000 recorded in February 2014.
The median sale price of 1,631 homes in San Bernardino County sold in February was $250,000, an 11 percent gain from $225,000 one year earlier, the report showed.
While the price gains bring relief to Inland homeowners who were once underwater on their mortgage or home equity, the DataQuick report described February as the worst month for sales in all of Southern California in seven years.
“This feels a lot like early 2014,” DataQuick analyst Andrew LePage said in a telephone interview.
February has traditionally been characterized by year-over-year gains across the Southern California market. This year, sales were 21.6 percent below the February average of 17,420.
Home sales in Southern California have fallen on a year-over-year basis over 15 of the past 17 months, Le-Page said. Last year, home sales were slow as would-be homeowners struggled with credit hurdles, reduced affordability and inventory constraints, Le-Page said. This year the scene is no different.
Across Southern California, 13,650 homes were sold in February, a 2.8 percent drop from the year earlier for the six-county region. Home sales in Riverside County were down 4.0 percent and in San Bernardino County were off by 13.0 percent.
“A lot of people are hoping for more inventory,” LePage said. “It’ll be seen whether we get it.”
A few years back, distressed home sales were driving sales activity. “These days, it’s more about traditional drivers like job growth, rising rents and household formation,” LePage said.
The median price paid for all new and existing houses and condos in the six-county Southern California region in February 2015 was $415,000, up 8.4 percent from $383,000 in February 2014.
Orange County’s February median, $590,750, came closest to reaching its peak, which was $645,000, reached in 2007. It was a 8.4 percent shy of the mark.
The $305,000 median price homebuyers paid for a new or existing home in Riverside County in February is 29.4 percent off its December 2006 peak of $432,000, LePage said. The San Bernardino County median home price of $250,000 in February was also well below the November 2006 peak of $380,000.
Foreclosure activity in the Riverside County region in February fell to levels not seen since July 2006, according to a new report from RealtyTrac.
That time frame is significant because homebuilding and homebuying were in a frenzy about 8 1/2 years ago.
RealtyTrac vice president Daren Blomquist said the country and the region have reached a major milestone because the pace of foreclosure activity is fading. Across the nation, foreclosure activity is on track to return to historic norms in 2015, and possibly will fall below historic norms.
What did the February foreclosure picture look like in Inland Southern California?
Total foreclosure filings – notices of default, auction or bank take-back – fell to 1,144 in Riverside County and increased to 1,246 in San Bernardino County, the RealtyTrac data showed.
The filings are down nearly 5 percent from January and 12.5 percent over February 2014 in Riverside County. In San Bernardino County, filings are up nearly 16 percent from January and up 3 percent from February 2014.
Blomquist, over many months, has warned that foreclosure activity would rise and fall month to month as banks and mortgage service companies push through the final remnants of distressed housing stock. That is what appears to be happening here.
Michael and Monique Cabrera, a San Bernardino couple who have lived across the street from a rambled down home, say they’re glad to see banks take an aggressive role to push properties with mortgages in default through the system.
“Morale is up,” Michael said. “Our kids are going for bike rides and playing outside again.”
The Cabreras, who bought their home three years ago, said they’ve seen several potential buyers check out the home in the last few weeks. “It looks like good people coming in, families,” he said. “We’re happy about that.”
The Inland region, with 1.5 million housing units, once led the nation in foreclosure filings. In February, the two-county metro region ranked sixteenth for overall foreclosure activity in the country.
One out of every 630 homes received a foreclosure-related filing, according to the RealtyTrac report.
For all of California, one out of every 1,190 homes received a foreclosure filing in February.
Leading the nation for foreclosure activity were the states of Maryland, Nevada and Florida.
Veterans Affairs home loans offer big-time benefits for qualified buyers, from no down payment or mortgage insurance to more flexible and forgiving requirements.
But this is also a specialized loan program aimed at helping veterans and military members purchase homes that are safe, sound, and sanitary. That means some properties will be a better fit for VA loans than others.
Here’s a look at three key tips for VA buyers preparing to start the house hunt.
1. Get a VA-savvy agent
One of the most critical steps VA home buyers can take is to contact a military-friendly real estate agent who has experience with VA loans.
Agents familiar with VA loans recognize the unique needs of veterans and military families. They also understand the short buying window that often comes with Permanent Change of Station orders for active-duty service members.
VA-savvy agents are also committed to giving back to the men and women serving their country. This combination of dedication and knowledge makes these agents a vital part of any VA borrower’s home-buying journey.
2. Look for move-in-ready properties
A good rule of thumb for buyers is to consider those three “S’s” and look for homes that are safe, sanitary, and structurally sound. These properties are more likely to pass the VA appraisal and save buyers a few headaches down the road.
Fixer-uppers can be tough given the VA’s minimum property requirements. These are broad-based concerns like ensuring the property has adequate heating, roofing, and safety features. Major issues would need to be repaired before the loan could close.
VA buyers should also consider properties that meet the VA’s outline for acceptable uses, and be wary of manufactured homes and homes in disrepair.
3. Understand risks and rewards of distressed properties
When it comes to purchasing foreclosures, home buyers should be aware of the trade-off between potential savings and potential frustration. Buyers may save a good chunk of change purchasing a foreclosure, but if things fall through, you might be out several hundred dollars in appraisals and inspections. Foreclosures can also take months to close.
The other consideration is that some distressed properties are in better shape than others. Foreclosures are typically sold “as-is,” meaning banks and lenders aren't likely to make or even allow repairs before closing. VA buyers who choose to pursue a foreclosed property should proceed with caution and patience.
If you’re a first-time home buyer, you might get a little queasy when the last line of yourgood-faith estimate comes in at several thousand dollars. And after the color returns to your face, you might also be a little more than perplexed by some of those fees.
Knowing what you’re paying for—like these 10 common costs—can ease that check-writing pain.
1. Earnest money
To prove you’re “earnest” in your purchase commitment, expect to plunk down 1% to 2% of the total purchase price as an earnest money deposit. This amount can change depending on market factors. If demand in your area is high, a seller could expect a larger deposit. If the market is cold, a seller could be happy with less than 1%.
Other governing factors like state limitations and rules can cap how much earnest money a seller can ask for.
2. Escrow account
An escrow account is basically a way for your mortgage company to make sure you have enough money to cover related taxes and mortgage insurance. The amount you need to pay varies by location, lender, and loan type. It could cover costs for a few months to a year.
Escrow accounts are common for loans with less than a 20% down payment and mandatory for FHA loans, but it’s not required for VA loans.
The origination fee is a hefty one. It’s the price you pay the loan officer or broker for completing the loan, and it includes underwriting, originating, and processing costs.
The origination fee is a small percentage of the total loan. A typical origination fee is about 1%, but it can vary. Use your good-faith estimate to shop around.
You want to be assured your new home is structurally sound and free of surprises such as leaks or pests living in the walls. Those assurances come with a price.
- Home inspection: This is critical for home buyers. A good inspector will be able to notify you of structural problems, flooding issues, and other potentially serious problems. Expect to pay $300 to $500 for a home inspection, although cost varies by location.
- Radon inspection: An EPA-recommended step, this inspection will determine whether your prospective home has elevated levels of the cancer-causing agent radon. A professional radon inspection can cost several hundred dollars.
- Pest inspections: Roaches are one thing. Termites are a whole different story. Expect to pay up to $150 for a termite inspection.
Some states, such as Georgia, require an attorney to be present at closing. In some other areas, this is optional. If you use a lawyer, expect to cover the costs, which vary by area and lawyer.
It’s typical for mortgage companies to have a lawyer on their end, although they should cover the bill.
6. Credit check
Just because you can get your credit report for free doesn’t mean your lender can (and it will actually pull all three). You have to reimburse the lender, usually around $30.
7. Extra insurance
If you live in a hazard-prone area, you might need to purchase extra insurance, like forflood.
Your lender won’t loan you money for a home without knowing what its fair market value is. An appraisal will cost $200 to $400, depending on location and property size.
9. Title company
You pay this to the title company to make sure the property’s title is free and clear. Your lender will recommend a title company, but you can also shop around for one.
It’s not required in all instances, but your lender may require a professional surveyor to determine exactly where your property lines are drawn. Prices vary widely, but expect to pay at least $100.
Remember: You have bargaining power. Shop around to get a feel for what rates and fees apply in your area. If you aren't sure what a lender is charging, ask for an explanation—the charge might not be set in stone. If you’re unhappy with a charge, negotiate.
- Foreclosure resales represented 5.7 percent of the resale market in January. That was up from a revised 5.3 percent in December 2014 and down from 6.6 percent in January 2014. In recent months the foreclosure resale rate has been the lowest since early 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009. Foreclosure resales are purchased homes that have been previously foreclosed upon in the prior 12 months.
- Short sales made up an estimated 6.5 percent of resales in January, up from a revised 6.2 in December 2014 and down from 10.7 percent in January 2014. Short sales are transactions in which the sale price fell short of what was owed on the property.
- Absentee buyers – mostly investors – bought 25.0 percent of the homes sold in January. That was up from a revised 23.6 percent in December 2014 and down from 27.6 percent in January 2014. The December 2014 absentee level tied the October 2014 level as the lowest for any month since October 2010, when 22.1 percent of homes were sold to absentee buyers. The peak absentee share was 32.4 percent in January 2013, and the monthly average since 2000, when CoreLogic DataQuick absentee data began, is about 19 percent. Absentee buyers include those who purchase vacation homes or other properties that public property records suggest are not used as primary residences.
- Cash buyers accounted for 24.6 percent of January home sales, up from a revised 22.2 percent in December 2014 and down from 29.9 percent in January 2014. The December 2014 cash share was the lowest for any month since January 2009, when 22.0 percent of homes were bought with cash. The peak was 36.9 percent in February 2013, and the monthly average since 1988 is about 17 percent.
- Jumbo loans, or mortgages above the old conforming limit of $417,000, accounted for 30.7 percent of purchase lending in January, down from a revised 32.1 percent in December 2014 and up from 26.6 percent in January 2014. The July/August 2014 level of 32.3 percent was the highest since the credit crunch struck in August 2007. Prior to August 2007, jumbo loans accounted for around 40 percent of the home-loan market. The jumbo level dropped to as low as 9.3 percent in January 2009.
- Adjustable-rate mortgages (ARMs) represented 11.3 percent of home purchase loans in January, down from 12.3 percent in December 2014 and down from 13.5 percent in January 2014. The ARM share dropped to as low as 1.9 percent of home purchase loans in May 2009. Since 2000, a monthly average of about 30 percent of purchase loans have been ARMs.
- The typical monthly mortgage payment for Southern California home buyers in January was $1,501, down from $1,558 in December 2014 and down from $1,528 in January 2014. Adjusted for inflation, the January 2015 typical payment was 37.7 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was also 48.9 percent below the current cycle’s peak in July 2007.
Total January Home Sales
in Selected Southern California Counties
|Homes Sold||Median Sale Prices|
|All homes||Jan-14||Jan-15||Percent Change||Jan-14||Jan-15||Percent Change|
Source: CoreLogic DataQuick. Data available at DQNews.com
If you think you can’t get a deal much better than a 3% down payment on a home, you might be surprised.
There are more than 2,000 down payment assistance programs nationwide that can drastically reduce the amount of money buyers need to pay at closing. But according to some in the industry, too few buyers and real estate agents know about them.
RealtyTrac, an Irvine, Calif.-based real estate research firm, along with Down Payment Resource, an Atlanta-based company that aggregates programs for real estate agents and buyers, recently identified nearly 2,300 down payment assistance programs.
There are limits on which buyers and homes can qualify for the programs: Those analyzed in the report had an average household income limit of $104,000 and a maximum sales price limit on average of $823,000. But even with those constraints, more than 86% of the 78 million single family homes and condos in the U.S. could qualify for one of them, the report said.
The more lofty the local real estate values, the fewer properties are likely to qualify. For example, according to Realty Trac and Down Payment Resource, only about 30% of homes in San Francisco and New York qualify. But in Wayne County, Mich., which includes the battered real estate market of Detroit, 94% of homes, nearly 1 million of them, qualify for some form of help.
The lack of awareness of down-payment aid is comparable to the situation with Veterans Administration housing-aid programs; while many veterans can qualify for zero-down-payment home loans, experts say too few know about the program.
“Prospective buyers — or their agents — willing to put in a few minutes of time to find out what programs are available to them will put themselves in a much better position to successfully purchase a home,” said Daren Blomquist, vice president at RealtyTrac.
A second loan to cut closing costs
Down payment programs are offered through a wide range of organizations — cities or counties, local housing finance agencies, non-profits or even employers.
A typical down payment program, known as a Community Seconds, works by adding a subordinate low-interest or no-interest mortgage to the first mortgage for the purpose of eliminating or reducing closing costs. The payment is often deferred or forgiven for each year the buyer remains in the home and sometimes has several emergency relief provisions for the borrower, though the loans can have a higher interest rate than the first mortgage.
Other programs include Mortgage Credit Certificates that can provide up to $2,000 in annual tax credits for the life of the loan. There are also programs that provide loans to revitalize downtrodden neighborhoods that have been hit hard by foreclosures.
On average, the amount of down payment assistance (DPA) RealtyTrac and Down Payment Resource was $11,565.
For example, on a $250,000 home with a 3% down payment of $7,500, the closing costs for the buyer could typically add up to another $13,000, once costs such as loan origination fees, broker’s commission, title, recording and transfer taxes were factored in. But a down payment program could lower the closing costs to just $200.
Real-estate pros say that wider use of down-payment programs could supplement recent efforts by the mortgage industry and the federal government to draw more buyers into the market, especially younger buyers struggling to scrape together a down payment.
Late last year, Federal Housing Finance Agency director Mel Watt ordered Fannie Mae and Freddie Mac to begin buying loans that have as little as a 3% down payment (or a 97% loan-to-value ratio), down from its earlier minimum limit of 5% (95% LTV).
RealtyTrac’s Blomquist noted in November 2014 that for a household with the estimated median U.S. income in 2014 of $54,417 it could take more than 12 years to save up for a 20% down payment for a home priced at the median value at a typical annual savings rate of 5.6%, but it could take less than two years to save for a 3% down payment.
Still, the problem, according to RealtyTrac and Down Payment Resource, is that few buyers and agents know about possible assistance. According to a NeighborWorks research study, 70% of American adults don’t even know these programs exist.
“Down payment assistance tends to suffer from lack of awareness,” Mark Hughes of First Team Real Estate, in Irvine, California, told RealtyTrac. “Guidelines and specifics tend to change with economic swings. Agents typically don’t keep up with the changing requirements,” he said.
Another problem: Despite the availability of down payment help, some buyers who use down payment programs still lose out on purchases when they compete with buyers who can put the traditional 20% down or make all-cash offers. That will change when more inventory comes on the market, said Greg Smith, a broker at Re/Max Alliance in Denver, “Overall I think the new low-down programs will help long term, but may take time to have any real impact,” he told RealtyTrac.
To check and see if a property could be eligible for a program, you can go to the down payment resource eligibility search engine.
10 U.S. counties with most homes qualifying for down payment help
|State||County||Single family homes |
in the county
|# that qualify for |
|% that |
In its 10 years of existence, online real estate database Zillow (Z) has collected an unfathomable amount of information on housing prices. In the new book "Zillow Talk: The New Rules of Real Estate," CEO Spencer Rascoff and chief economist Stan Humphries put that data to use by sharing ways to get the most value out of a home. “We’re interested in converting real estate from an area of folklore into fact,” Humphries told Yahoo Finance. He joined Jeff Macke to share some of his favorite tips for navigating today’s real estate market.
Redo the bathroom, not the kitchen
“It’s always been conventional wisdom that the best remodel you could do was the kitchen,” says Humphries. “We actually crunched an enormous amount of data...what we found is actually it’s the bathroom remodel that adds the most value to a house.”
According to Humphries it makes the most logical sense because with a bathroom remodel functionality is being added to the house whereas kitchen upgrades are often more about fashion.
According to Zillow's data a mid-range $3,000 bathroom remodel results in a $1.71 increase in home value for every $1.00 spend on renovation.
Plus “when people come to stay with you, you’re going to be a lot happier that you have a nicer bathroom than kitchen.” Kitchen renovations offer among the lowest returns on investment. Both mid range and upscale work on the kitchen recover only about half of their investment.
Just don't invest too much money in the bathroom, upscale $12,000 bathroom upgrades result only in an $0.87 increase in home value for every $1.00 spent.
Home sales reach their peak in June, during the last week of that month residential real estate transactions are 40% higher than average. But when is the right time to list your home?
The home season starts to crank up in January and February, says Humphries. But to get the most bang for your buck you might want to list your house during the last two weeks of March. There's a sharp spike in visitors making contact with real estate agents on Zillow beginning in mid-April and continuing into July.
Selling in the last weeks of March, before the peak in agent contacts and after the peak of newly listed homes in February puts your home in the sweet-spot where it's likely to be seen quickly and not get lost within a flood of new listings.
Humphries writes to "put your home on the market after you fill out your NCAA March Madness basketball brackets, but before someone slips on an ivy-green jacket at the Masters Golf Tournament."
Psychologically price your home
Ending your home price in a ‘9’ is incredibly beneficial, says Humphries. “If you were going to sell your house for $150,000, just pricing it down by $1000 and selling it for $149,000 ends up in you making $2175 more than you would if you priced it at $150,000.” The '9' dynamic works for houses at all price-points.
In the majority of cases, home prices that end in a '9' sell for more for a home of the same relative value that ends in a '0.' The risk that the seller takes on by cutting their home price by $1,000 usually results in gaining more than $1,000 over asking.
psychological pricing also sold home faster-- Zillow found that homes using '9' in the thousands digit sold four days to one-week faster than those that didn't.
CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled services provider, today released its January 2015 Southern California housing market report. Home sales in January fell sharply from December, as they normally do, and dipped modestly from a year earlier, marking the 14th month in the last 16 to post a year-over-year sales decline. The median price paid for a home in the six-county region also dropped month over month but rose year over year for the 34th consecutive month, although that increase was less than half the gain of a year earlier.
A total of 13,560 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in January 2015. That was down month over month 29.4 percent from 19,205 sales in December 2014, and down year over year 6.3 percent from 14,471 sales in January 2014, according to CoreLogic DataQuick data.
On average, Southern California sales have fallen 27.6 percent between December and January since 1988, when CoreLogic DataQuick data began.
January home sales have ranged from a low of 9,983 in 2008 to a high of 26,083 in 2004. January 2015 sales were 21.7 percent below the January average of 17,322 sales since 1988.
"The January and February statistics are always interesting, and sometimes a bit strange, but they're not necessarily a good indication of what's to come," said Andrew LePage, data analyst for CoreLogic DataQuick. "That's largely because many traditional buyers and sellers drop out of the housing market during the holidays and mid winter, and therefore don’t close deals during those months. In recent years that's led to somewhat higher concentrations of investor activity for January and February, and we saw that again last month. Heading into spring it will be interesting to see whether price appreciation and other factors will finally release a lot of the pent-up supply of homes out there. More owners have gained enough equity to sell and buy another home and more will be satisfied with how much their homes can fetch. At the same time, recent gains in job and income growth, coupled with low mortgage rates, could stoke demand and put significant pressure on prices unless we see a meaningful jump in inventory.”
The median price paid for all new and resale houses and condos sold in the six-county region in January 2015 was $409,000, down 1.4 percent month over month from $415,000 in December 2014 and up 7.6 percent year over year from $380,000 in January 2014. The median hasn't changed significantly since September 2014, when it was $413,000. The median's peak for 2014 was $420,000 in August.
Southern California's median sale price has risen on a year-over-year basis each month since April 2012. In the 22 months between August 2012 and May 2014 those annual gains were double digit, as high as 28.3 percent in June 2013. Since then, the year-over-year increases in the median sale price have been single-digit. In January 2014 the median rose 18.4 percent compared with January 2013 – more than twice the 7.6 percent gain when comparing January 2015 with January 2014.
The January 2015 median sale price was 19.0 percent below the peak median price of $505,000 reached in March, April, May and July of 2007. Among the region’s six counties, the January 2015 median in Orange County ($562,500) was the closest – within 12.8 percent – to its peak of $645,000 in June 2007.
Home prices in Southern California have been rising at different rates depending on price segment. In January 2015, the lowest-cost third of the region's housing stock experienced a 9.0 percent year-over-year increase in the median price paid per square foot for resale single-family detached houses. The annual gain was 5.7 percent for the middle third of the market and 3.2 percent for the top, most-expensive third.
The number of homes that sold for $500,000 or more in January 2015 rose 2.0 percent compared with January 2014. Sales below $500,000 fell 13.8 percent year over year, and sales below $200,000 dropped 30.3 percent.
Sellers in hot real-estate markets — where there’s not enough for-sale inventory for the number of people who want to buy — may not feel compelled to spend money to stage their whole house. And they may not need to, given the reduced competition.
But they still should do the minimum: Keep the house free of common issues that send prospective buyers running for the doors, said Brendon DeSimone, a real-estate agent licensed in New York and California. In his book, Next Generation Real Estate, he lists some of the most common buyer turnoffs—and how to handle them, which often takes daily discipline.
“Bidding wars happen for perfectly-located homes that show like museums,” he said. “When your house is on the market, you have to be living on egg shells—you have a month or two of being tidy.”
Decluttering, depersonalizing and painting rooms in neutral colors are always smart moves when prepping a house for sale. But if you do nothing else, steer clear of the following buyer turnoffs before allowing a prospective buyer to walk through your home.
Pets and their things
Nobody wants to see a dirty kitty litter box or a dog bone on the sofa, DeSimone said. And as best you can, get rid of lingering pet smells. (Cat urine on the carpet, DeSimone said, is one of the hardest smells to remove. Even worse, sometimes it can seep into the hardwood floors below.)
“The most offensive odor is animals, and you can plug in, light up and spray all you want,” but it won’t completely cover up the smell, said real-estate agent Heather Lamp, based in Fort Mill, S.C. She recently wrote a blog post about issues that most annoy buyers when walking through homes.
Pets should be out of the house during showings. If possible, it’s easier to have a friend or relative watch your dog or cat during the entire time your home is on the market, Lamp said.
You don’t have to paint the whole house, but rooms with bright or unique colors or wallpaper should be covered with something more neutral.
In searching for a home recently, Catherine Gacad couldn’t see beyond the bright colors and outdated wallpaper in a home she saw in San Francisco’s Miraloma Park neighborhood. “If the sellers had just unpeeled the wallpaper and repainted everything white, it would have been fine,” she said. She lost patience and walked out.
Toys and Baby supplies
Other parents will understand how difficult it is to keep a home tidy with kids in the house. But not all potential buyers will be parents. Make sure all toys have a home in a toy chest or closet.
If you have a newborn, dirty diapers need to be taken out and *** pumps should be out of sight. Dirty bottles and *** milk shouldn’t be left out; buyers may get the impression that the home isn’t sanitary, DeSimone said. In fact, store the clean bottles, too, and don’t leave them on a drying rack near the sink. Give yourself a good 20 minutes to pack up baby items before a showing, he said. The payoff of an always-neat home: You’re more likely to get a higher price, he said
The second most offensive smell, in Lamp’s book: Cooking smells.
Strong spices, bacon, onions—they all tend to linger long after the meal is over, she said. To diffuse them, leave a window slightly cracked while cooking. After you’re done with the meal, boil some cinnamon in water to freshen up the house. Plug-ins and sprays can make the problem even worse for people who are sensitive to smells—or allergic to the fresheners, she said.
One buyer Lamp was working with didn’t get two feet in the door before she turned around, due to the smell of strong spices. Another time, the buyer left after smelling incense burning.
For many, the smell of cigarette smoke throughout a home is a deal breaker, and a reason to hasten a walk through, DeSimone said. “If you’re a smoker, seriously, get the whole house painted,” he said.
Dirty dishes, cluttered counters
No buyer will want to see last night’s spaghetti stuck to plates in the sink. That’s a given. But clutter on the counters, from the coffee maker to the toaster oven, also will be a distraction, making counter space look smaller and your kitchen, in general, looking messy.
DeSimone’s advice: Create a special drawer or cabinet for things that you use on a regular basis, but need to be stashed away. That will help you quickly find a place for them each day.
Women, in particular, clutter bathrooms with makeup, perfumes and other grooming items, Lamp said. Store everything under the counter. And make sure the hair is out of the tub and the toothpaste smears are wiped out of the sink, Lamp said.
“I don’t know how people live like this,” or “I thought I was a mess, and now I feel like I have obsessive compulsive disorder,” are a couple of comments Lamp has heard clients utter when walking through messy bathrooms. Sometimes, through body language with their significant others, such as a nod or a raise of the eyebrows, she can sense their disapproval.
Keep a clean (and flushed!) toilet and always keep the lid down. Enough said.
The flip side of all of the above: If you’re a buyer and can overlook some of these seller faux pas in a home, you might get a better deal, DeSimone said. So while some buyers will be disgusted enough to cross a problematic home off their list, others will see the opportunity of a diamond in the rough.
By Amy Hoak
Borrowers who have steady income and good credit, but not much money in the bank, will find that it recently became easier to buy a home.
Down payment requirements, which rose after the subprime mortgage crisis, are easing again as lenders and mortgage backers try to draw in new buyers.
"It's one of the things that's inhibiting first-time homebuyers," said Rob Chrane, president of Down Payment Resource. "There are a lot more people who can qualify for a home that don't realize that they can."
FHA cuts insurance costs
The Federal Housing Administration has long backed loans for borrowers with lower credit scores and with down payments as low as 3.5%, but until this year it also required hefty insurance payments.
FHA monthly insurance premiums dropped dramatically at the beginning of 2015. The change, from 1.35% to only 0.85%, will make FHA loans a better choice for some borrowers after years of prohibitively high premiums, said Anthony Hsieh, chief executive officer of loanDepot, one of the largest FHA lenders in the country.
"We're starting to get back to what's reasonable," said Hsieh. "The crisis has shaken the market so much that there is no doubt there was an overreaction."
Fannie and Freddie
Fannie Mae and Freddie Mac guarantee more than half the country's mortgages. At the end of 2014, the two government-backed companies announced plans to slash minimum down payments from 5% to 3%.
The new program from Fannie Mae went into effect in December, and the one from Freddie Mac will begin in March. Both are only for first-time homebuyers, and the Freddie Mac program is restricted to low-income borrowers.
Loans backed by the two mortgage giants still require private mortgage insurance for down payments below 20%.
And just because Fannie and Freddie are willing to buy loans with looser requirements doesn't mean the lenders themselves will change their standards.
"It's a phenomenon of the post-recession where lenders learned their lesson," said David Stevens, president of the Mortgage Bankers Association. "They learned that simply because the investor will allow it, the lender may still not feel comfortable doing it."
"Rural" and VA loans
Other types of low-down payment loans have also become far more popular since the recession.
Despite its name, loans from the Department of Agriculture are available to borrowers in many locations that are hardly rural, and they include no-money-down financing. To be eligible for USDA loans, a borrower must have dependable income and decent credit, and can't already own a home, exceed certain area median income thresholds or live within certain urban areas.
Department of Veteran Affairs loans are also booming, coming close to outnumbering FHA loans. Although not available to the average American homebuyer, VA mortgage backing allows veterans and surviving spouses to purchase property with no money down, no outside insurance and limited closing costs.
Average VA interest rates are lower, and credit and income requirements are also more flexible than conventional loans.
A return to easier credit
The shift toward loans with lower down payments has drawn criticism from some politicians -- after all, easy loans with little money down contributed to the crisis that led to the Great Recession.
Stevens said that new rules for qualified mortgage loans and more diligent underwriting by lenders will protect the lending market.
"Down payment has become the single largest barrier to home ownership," said Stevens. "Quite frankly, it's going to be a lot safer and sounder this time than it was in the past."
Leaving an old community can be difficult. On top of moving your possessions, selling your home, and saying goodbye to old friends, it can be hard to remember the things you need to do in order to set up the new life waiting for you in a new locale.
To make it easier, make a checklist and follow this handy guide to make your move smoother.
Check your new city to see if your bank has a branch nearby. If not, you may need to switch banks; this is especially true if your bank is regional.
Don’t forget to grab anything you have in your safety deposit box, as well.
If you can, have your current doctor call in prescriptions to a pharmacy in your new town. This will give you time to pick out the right doctor—not just one that is available.
Keep your old doctor’s number so you can contact them when you need paperwork forwarded to your new doctor.
If you’re keeping your health insurance plan, look for doctors in your new area that will accept it. If you need to switch providers or update your plan, try to do so before you move.
If not, ask your insurance agent for a recommendation, call the local chamber of commerce or research companies online.
Things to Transfer
Formally resign or transfer memberships from any local organizations, gyms, associations, and clubs.
Be aware that canceling before your membership has completed can result in early termination fees. Factor it into your moving costs and move on.
And just for safekeeping, ask the school system to make copies of all your children’s records for you to take with you.
Raid the Kitchen
About a month before moving, be sure to start using up any frozen goods so that you avoid waste.
Also use up, give away, or donate any unopened food in your pantry. These items can be bulky and heavy to transport.
Check the Car
Tune up the car to avoid a breakdown on the way to your new home. If you have a trusted mechanic, ask if they can refer you to another near your new address.
If it’s a long road trip, pack a first-aid kit just to be safe. This should contain bandages, bug spray, sunburn spray, tissues and medications you or your family will need along the way.
Final Closure for Moving
Moving can be tough on the whole family. To bring a sense of closure for everyone, try these six tips:
- Visit local spots that hold dear memories. Take snapshots or a short video for keepsake purposes.
- Host your own going-away party, and encourage your children to invite their friends. This is a good-bye for everyone—including friends, neighbors, former teachers, and colleagues.
- Take one last walk through the house together, noting spots you’ll never want to forget.
- Take a picture of the family in front of the old house.
- Take a picture of your family in front of the new house. Display both photos side-by-side somewhere in the new place for everyone to see easily.
- If you can, make plans to visit your old hometown within the first year after your move. Visit friends and drive past your old home, through neighborhoods, and landmarks. This post-move reconnection with dear friends and fond memories will help your family bring finality to the move—even after you’ve settled into your new digs.