Deciding on Whether to Move

Some homeowners feel like they may as well throw a dart against the wall to decide whether to move or not.  Other people might invoke a process attributed to Benjamin Franklin.  Supposedly, to evaluate the options and bring clarity to the choice, this American founding father would list all the reasons for and against the decision on a sheet of paper.  After reducing it to writing, the choice would appear either by obvious majority or practicality.

Buying a home is an emotional decision but selling a home can be also.  Separating the rationale from the emotion can make decisions seem obvious but they may still not be crystal clear.

There is an inventory shortage that caused prices to rise and market time to shorten.  In many active markets there is less than 30-days' supply of homes for sale which is half of what was available a year ago.  This will make it easier to sell and maximize the proceeds from your current home.

69% of economists who participated in the first quarter 2021 Zillow Home Price Expectations survey believe home inventory will begin to grow in the second half of this year or the first half of 2022.

Mortgage rates are near record lows which will keep payments at a minimum.  With the inflation rate in the United States expected to be between 2-3%, many borrowers consider that it balances with the mortgage rate to be an effective zero percent.

"Consumers are facing much higher home prices, rising mortgage rates, and falling affordability, however, buyers are still actively in the market," said Lawrence Yun, NAR's chief economist.  "At least half of the adult population has received a COVID-19 vaccination, according to reports, and recent housing starts and job creation data show encouraging dynamics of more supply and strong demand in the housing sector."

The pandemic has allowed many buyers have the flexibility to work from home for now and in some situations, permanently.  That opens new location possibilities options that would not have existed if they had to commute to work daily.  Economists believe that the increased preference to work remotely will be a permanent shift even if it is only a part of the work week.

This provides opportunities for homeowners to relocate in an area that doesn't have the high demand that their current area does and could benefit from more affordable housing for the replacement while possibly, maximizing the sales price of their current home.

Good information specific to your needs is essential to making good decisions.  Explore the possibilities with your real estate agent.  They can provide facts about the sale and purchase of another home.  Once you have the facts, you may use the Ben Franklin Balance Sheet to help you with your decision.

"Mise en Place" for Homebuying

In cooking, "mise en place" describes having all your ingredients measured, cut, peeled, sliced, grated, as well as bowls, utensils and pans ready to use before you begin cooking.  The advantage is to inventory the ingredients and recognize if you have everything you need.  You are less likely to leave out an ingredient or step because it is "set up" and ready to use.

The same technique works well in the homebuying process, especially in today's highly competitive environment where multiple offers are normal and bidding wars are commonplace.

Check your credit ... not only does credit determine if you will get a mortgage, but it will also determine the interest rate you'll pay.  The best rates are for the borrowers with the best credit; lower credit scores mean higher rates because of additional risk to the lender.  Free copies are available from all three major credit bureaus at www.AnnualCreditReport.com.

Determine your budget ... knowing your income and immediate living expenses will give you a feel for what you can afford but you also need to know what big-ticket expenses are in the future and how much you should be saving for them.  Lenders use debt to income ratios to qualify borrowers, but it may be more than the buyers feel comfortable with.  This is good information to discuss with your mortgage professional.

Meet with a mortgage banker ... their job is to get borrowers approved and instead of using calculators on a website, a trusted, experienced mortgage professional can look at your credit, make suggestions if it can be improved, run verifications on income, assets and liabilities and suggest loan programs to benefit your specific situation.  They can even provide a pre-approval letter and phone verification that may be the tipping point to negotiating a successful contract with a seller.

Initial investment ... The down payment and closing costs are related to the type of mortgage, which is generally, dependent of how much of the buyer's savings is available.  The down payment can range between zero and 20%.  Mortgage insurance is necessary on most loans if the down payment is less than 20%.  Buyer's normal closing costs range between two to five percent of the mortgage.

Costs of homeownership - Most mortgage payments include the principal and interest plus 1/12 the annual property taxes and insurance plus mortgage insurance if required.  Other expenses that will be incurred by the homeowner include maintenance, HOA dues, utilities, upkeep and replacement of equipment and appliances.

Process and timeline ... people tend to feel more comfortable when they understand the process of buying a home and the length of time it takes for the different steps.  Your real estate agent will be able to provide this information to you based on the type of mortgage and local market conditions.

Know the numbers ... being familiar with the basic statistics makes planning and even, negotiation easier to predict.  Important data, relative to the type of property you are buying, includes the current supply of homes for sale, days on market, sales price to list price ratio, and percent of cash sales in your price range.  This is another area that your real estate professional can be very helpful.

Must-have features ... the concept of a "dream home" is more myth than reality.  People rarely get everything they want even when they are building a home.  Especially, in a highly competitive market with rapidly increasing prices, buyers should create a list of their "must have" and "nice to have" features and amenities.  This can be helpful when you are determining whether to write a contract on a home.

Build your team ... buying a home is like an athletic team.  By selecting the best "players" for each position, you will have a much better chance for a successful sale and a satisfactory transaction.  Your real estate agent is in a unique position to guide you through the entire process and recommend trusted professionals for each job that needs to be done. 

An excellent meal includes fresh, good food, the right ingredients, superb preparation, and execution.  Whether you are following a recipe or doing it from memory, each step is important and affects the outcome.  The same is true for buying a home.  Get everything together before you start looking at homes.

For more information on buying a home, download our Buyers Guide.

It's Not too Late to Refinance

With mortgage rates below 4% since May 2019, you would think that most people would have already refinanced but according to a recent Lending Tree survey, 49% of homeowners say they are considering a mortgage refinance in the next year.  The report estimated that over a third of homeowners are have mortgages above 4% and 11% didn't know what their rate was.

Slightly more than a third of the people surveyed regretted missing the opportunity to refinance in 2020 when rates did hit their historical low.  Homeowners should not beat themselves up on this issue because the only way to know to tell that it hit bottom is after it has started going up again. 

The current rates are very favorable to borrowers and some economists believe that when inflation is factored in, the rates are close to zero effectively.

While there are nine specific reasons people choose to refinance their homes, two are among the most prevalent: to lower the payment or take cash out of the equity.  Most reasons include:

1. Lower the payment
2. Lower the rate to pay less interest
3. Shorten the term to pay off the loan sooner
4. Take cash out of equity to pay off higher cost debt
5. Take cash out of equity to improve their liquidity
6. To remove a person from the loan as in a divorce
7. To combine a first and second mortgage
8. To replace an adjustable-rate mortgage
9. To consolidate debt

There are some commonly held myths about refinancing among homeowners such as:

• You can only refinance your home once.
• You must refinance through your current lender.
• There should be two-percent difference in the rate to justify it
• You need 20% equity to refinance
• Applications require a lot of documents
• You need cash to cover closing costs
• You won't save that much by refinancing
• It's free to refinance

If your current mortgage is a FHA, there is limited borrower credit documentation and underwriting program.  The mortgage must be current and not delinquent, and the refinance must result in a net tangible benefit to the borrower such as a lower rate, lower payment or better terms.  For more information, see Streamline or contact an FHA approved lender.

VA has a similar program if your existing mortgage is a VA-backed home loan. The purpose is for a borrower to reduce their payments or make their payment more stable.  They must certify they are currently living in or did live in the home covered by the loan. The Interest Rate Reduction Refinance Loan, IRRRL, may be available.

USDA also has a program for current USDA direct and guaranteed rural homebuyers who have been current on their payments for 12 months prior to requesting the loan refinance.  No appraisal or credit review is required.  There must be a minimum of 40% net reduction to the PITI payment.  More information is available.

Before refinancing your home, determine how long you plan to keep the home.  If the reason for refinancing is to save interest by getting a lower rate, you may accomplish that immediately.  However, if you plan on selling soon, you may not be able to recapture the cost of refinancing.

There are costs associated with refinancing regardless of whether you pay for them in cash, or they are rolled into the cost of the mortgage.  These costs can range from two to five percent of the mortgage.

Check out the Refinance Analysis to determine your breakeven point and savings.  Call if you have questions or want the recommendation of a trusted mortgage professional.

Writing a Successful Offer in a Low Inventory Market

With at least 40% less homes on the market currently than there were a year ago, serious buyers have probably experienced the disappointment of losing a home they wanted to buy from increased competition.  Today's buyers are looking for ways to improve their odds of being the best contract without having to use the purchase price as their only tool.

Buyers should reconsider, rethink, and re-evaluate their "must have" features and amenities.  It is probably unrealistic in a normal market to think you can have the perfect home at the price you want but in today's market it is less possible.  List the things you must have and the things you would like to have and prioritize them.  Try to identify the critical from the convenient.

The next step is to put together your "home" team.  You are the captain of this process, but it is essential to have a strong first officer and that is your real estate agent.  This professional will oversee the process, advise you on current market conditions and normal procedures.  Your agent will even help you assemble the rest of the team like mortgage officer, title, insurance, warranty, inspectors and can recommend service providers.

Your agent can advocate your cause personally to the listing agent by personally delivering the offer and expounding on your strong points to lobby your position.  Obviously, your agent will not share anything that you do not expressly give them permission to.

Even before you write the offer, your agent can inquire with the listing agent about any preferences of the seller not mentioned in the listing agreement as well as to use the proper contract forms and addendums.

The following list of suggestions are provided for your consideration realizing that some may not be appropriate for your individual financial situation or comfort level.

• Get pre-approved from a local lender and include documentation with offer to purchase.
• Have lender phone and email listing agent to expound on pre-approval.
• Increase the amount of earnest money.
• Acknowledge flexibility on closing and occupancy dates.
• Eliminate unnecessary contingencies.
• Waive the appraisal and have proof of funds to meet the difference in the purchase price.
• Avoid concessions like asking the seller to pay the buyer's closing costs or points.
• Avoid including personal property to go with the sale unless specified in listing agreement.
• Purchase "as is" with right of quick inspection to cancel contract if condition is unacceptable.
• Shorten time frames on necessary contingencies.
• Attach proof of funds for down payment or full purchase price if cash.
• Arrange bridge financing to be able to pay cash.
• Buyer should pay their own normal closing costs.
• Write a personal note to the seller explaining why you like and want their home.  Some listing agents are advising sellers to not accept them due to potential discrimination liability.
• Escalation clause ... offer to pay $X,000 more than highest acceptable offer up to a limit.
• If you physically sign the offer, use a contrasting color ink to add a personal touch.  If using a digital contract, change the font and color to distinguish the signature.
• Make your best offer first because they may not make a counteroffer.

When a new listing hits the market, it is commonplace for there to be a rush of interested buyers that result in multiple offers.  It is prudent for you to research and consider which of these ideas you can implement before you find the home; it is much better to have more time to make these decisions, especially, if it involves a mortgage officer or an attorney.

Your real estate professional will be able to tell you if these suggestions are viable and may be able to offer additional recommendations.  If you do not have an agent, contact me at (973) 251-0100 or Cheryl@thedarmaningroup.comto discuss a plan to craft your offer in the most favorable way possible.