Data released by the National Realtors Association suggests that close to 90% of homebuyers in 2019 used the services of real estate agents. When you’re buying a home, there’s a good chance you’ll need to use the services of one as well.

Selecting the right real estate agent plays an important role in the home buying process. This is because a good agent can help make the entire experience smooth and hassle-free. On the flip side, someone who is not good might add to your woes, mentally and financially. Fortunately, finding a good realtor is not as difficult as some might make it seem. You simply need to ask prospective real estate agents the right questions and pay close attention to their answers. With that taken care of, you’re so much closer to buying a home.

Here are questions you should ask potential realtors so you may select the one who works best for you.

1. What sets you apart from your competition?

Real estate agents come with different skill sets, personalities, and work ethics. Start by asking them what sets them apart from others in their field.  If there is little more than a number talk at this stage, you might have reason to be wary. After all, you don’t need a salesperson but someone who will be able to guide you through the home buying process, and look for homes based on your specific requirements.  Some agents leverage technology when trying to find the best possible deals for their clients. Good agents also remain updated about any changes made to local zoning or tax laws.

Not all real estate agents have the same qualifications and certifications, which is why you need to ask prospective agents about the ones they hold.

• Realtor. A member of the National Association of Realtors
• Accredited Buyer Representative (ABR). Completed specific training in representing buyers
• Accredited Seller Representative (SRS). Completed specific training in representing sellers
• Seniors Real Estate Specialist (SRES). Agents over 50 years of age who have completed training in helping buyers and/or sellers
• Certified Residential Specialist (CRS). The highest credential awarded to residential agents and brokers

In addition, while a real estate broker is someone who usually heads a firm, a real estate agent typically works under a broker.

2. Are you a full-time real estate agent?

If the answer to this question is no, it’s best that you look at your next alternative. Availability is a crucial aspect when it comes to working with an agent, and you ideally need to work with someone who you may contact as and when the need arises. This is because time can be of the essence when making an offer, especially in hot markets.

3. How will we contact each other and will I receive updates?

Your agent should be comfortable with whichever means of communication you prefer, be it over the phone, via text messages, or via email. Ask if you will have the option of submitting your offer electronically, where you can complete all the required documentation online. You also need to set expectations about receiving updates, as there are instances of homebuyers complaining that their agents don’t update them as often as they would like.

4. Do you have experience in the desired neighborhood?

Several housing markets across the U.S. have micro-markets, where features of specific neighborhoods work as driving forces, and trends vary accordingly. In any such area, it is important to look at unique aspects such as development plans, schools, and even building restrictions. With an agent who has the required local knowledge and experience, making an informed decision becomes considerably simpler. Besides, when an agent is well-versed with an area, he/she will know the kind of value you can get, and will also be able to recommend local services after you eventually shift base.

5. Do you work just with buyers or with sellers as well?

Several agents specialize in working either with buyers or sellers. Looking for an agent who has experience with both aspects might work well for you. This is because your agent will also have experience in working with sellers, and can offer valuable insight from that perspective.  If you plan to sell an existing home and buy a new one, you might be able to use the same agent’s services for both.

6. How many clients have you assisted?

The answer to this question gives you an indication of an agent’s experience – and it’s way better than asking how long an agent has been in business. After all, what good is an agent who’s been in this field for over a decade and helped just 10 people in buying homes? Asking how many clients an agent is currently working with gives you an indication of how much time he/she might be able to devote to you.

7. Do you have references and can I look at reviews of previous clients?

Selecting a real estate agent is similar to hiring a new employee in the sense that you want to narrow down the best possible candidate. As a result, just as you would go through references of probable employees, you need to with your real estate agent as well. If an agent is hesitant to, or cannot provide a list of references, think of it as a big red flag.

In the world of fake online reviews, discerning ones that are real from ones that are not can be challenging. This is the case with online testimonials as well. To get around this roadblock, simply ask to talk to some of the agent’s previous clients personally. Checking different social media platforms to see what previous clients have to say can also give you some indication about whether or not to go with any particular agent.

8. Do I need to sign a contract and will canceling it attracts a penalty?

Real estate agents commonly ask buyers to sign agreements that stay in effect for a predetermined period. You should try to steer clear of agreements that you can’t get out of without paying penalties. An agreement that gives an agent an easy way out but does not confer the same privilege on you is also best avoided. Some agents are known to charge termination fees in place of out-of-pocket expenses.

Bear in mind that buyers don’t have to pay agent fees in the U.S. The seller’s agent receives a fee from the seller, which is split equally with the buyer’s agent.  The percentage might vary based on the market and the agent, although it’s typically around 6%.

9. What if I’m not happy with how things are progressing?

Your agent should give you the freedom to select another agent if you’re not happy with his/her services. By asking this question, you get an indication of what might happen if to choose to opt-out of a contract. If you feel you’re unhappy with an agent’s work, you should make it known immediately. Your further course of action would depend on how your agent responds.

10. Do you have experience with short sales and foreclosures?

You would benefit by asking this question even if buying a distressed property is not on your mind. This is because buying foreclosed homes or those involved in short sales is typically more complicated. Real estate agents who are experienced in dealing with banks and closing complex deals tend to have strong organization and negotiation skills, which will come in handy during your journey of becoming a homeowner.

11. How much time would you take to show me a home I like?

Homes in hot markets can sell very quickly – even within a few days of being put on sale. In any such scenario, you need to move fast, and the first step would be to view the home. Ask your agent how quickly he/she can arrange for a viewing and how much notice you need to provide. Ensuring that your schedules align can save you heartache later.

12. Will you be a part of the home inspection process?

If an agent isn’t going to attend a home inspection or plans to delegate the task to someone else, you might want to look for a different alternative. Agents should ideally attend all home inspections as this is the best time to communicate with home inspectors and clarify all possible doubts about the property in question.

13. How do you typically negotiate?

Unless you consider yourself a master negotiator, this aspect is best left to your real estate agent. This is why your agent needs to have strong negotiating skills. No matter whether it’s buying a home or selling one, an agent needs to approach the process with a win-win attitude. Since a win-win situation would vary depending on different buyers and sellers, agents need to analyze each situation based on its merits before determining what to do next.

14. Can you recommend other service providers?

When buying a home, you will need to use the services of different types of professionals, so it makes sense to ask your agent for suggestions. While you will need to contact a mortgage provider at some point, you will also need to use the services of an appraiser, a home inspector, and a real estate lawyer. Along the line, recommendations for moving companies and contractors might also come in handy.

It is important that you find out just why you’re agent has chosen the people or businesses in question, be it attorneys or lenders. Instances of agents receiving commissions or gifts from lenders are not unheard of and might warrant your attention. Some agents, on the other hand, simply give their clients tips on how to choose mortgage providers based on their requirements.

15. Do I need to get preapproved?

While some agents might say that you don’t need to get preapproved for a mortgage to look at homes, most feel that it is best that you do. Getting preapproved gives you an indication of how much you can afford. Your real estate agent uses this information and shows you houses accordingly. Without preapproval and no real indication of how much money you might qualify to borrow, your estate agent may end up wasting considerable time in showing you homes that you can’t even afford.

Getting preapproved also works well on another level. The process gives you insight into different types of loans, different types of interest rates, as well as how loan terms and conditions might vary.

16. What other home-buying guidance can you provide?

If you’re a first-time homebuyer, you need to work with an agent who can guide you through the entire process, from the time you apply for preapproval until the time of closing, and maybe, even till you move into your new home. Your agent should be able to tell you how open houses work, what home inspections entail, what to do when making an offer, and just what happens after closing the deal. Also, your agent needs to steer you clear of home buying mistakes that you need to void.

Conclusion

Finding a good estate agent might seem like a daunting task, given the large number of options from which you get to choose. You can start by getting recommendations from family and friends. In this case, you need to ensure that you do not make your decision based purely on emotion. Ideally, you need to select an agent who has experience in working with clients who’ve had similar requirements. For instance, your requirements as a first-time home buyer would be different from someone who is looking at downsizing.

Make sure you ask prospective agents all the questions mentioned on this page, as well as any others that you might have. While experience and knowledge are crucial, you must select an agent you can trust and one who makes you feel comfortable.

Mortgage rates in the United States have continued to remain low in recent times, and the trend is expected to carry on in 2021. As a result, this is a good time to consider buying a home. However, getting a mortgage to purchase a home is easier said than done, and requires that you pay attention to some crucial aspects.

Data shows that sales of new single-family homes in the U.S. dropped by 3.5% from August to September 2020, although sales in August accounted for a 14-year high of 994,000 units. Besides, sales of homes have remained promising on account of low-interest rates as well as a rise in demand from people who are moving out of large cities because of the COVID-19 crisis.

Challenges that prospective homebuyers might face in 2021 include:

• Rising credit score requirements
• Larger down payment requirements
• Pausing or slowing down of mortgage issuances by some lenders
• Sellers taking their homes off the market

Fortunately, buying a home in 2021 can be simplified if you know what you look for and what to avoid.

Determine if Buying is Right for You

If you plan to move from renting to homeownership, start by determining if this is what you want. If you’re thinking about buying a home as an investment, don’t overestimate your return on investment (ROI).  Also, bear in mind that real estate does not appreciate at all times. Putting all your money toward your home is never encouraged by financial experts. Consequently, you should ideally look at your first home purchase as your right to housing, as opposed to viewing it as an investment.

Some of the pros of buying a home include:

• It is more affordable than renting over time.
• You get to build equity.
• You get tax breaks.
• You get more flexibility in making changes to your home.
• You get a sense of stability.

Some of the cons of homeownership include:

• You have to make a down payment.
• Relocating at a later date can be a challenge.
• Your home’s value might depreciate with time.
• You might risk facing foreclosure if you experience financial hardship.
• You will need to spend money on ongoing maintenance as well as repairs and renovations.

Check and Fix Your Credit Score

No matter whether you are buying a home for the first time or are an existing homeowner, the interest rate that applies to your new mortgage depends on your credit score. People with credit scores over 750 tend to get the best mortgage rates. You may expect to get a good deal if your score is between 700 and 750. With a score that is below 700, you will either get a less than the desired rate or will need to pay a higher than usual down payment. While a credit score of around 620 is the lowest that most lenders accept, some might go as low as 580. Checking your credit score online is simple and takes little time.

Set a Budget

Setting a budget and sticking to it finds a mention in most lists of home buying tips for first-time buyers. Start by asking yourself just how much you can afford. The general rule of thumb suggests that your budget should not exceed three times your annual income.  For example, if you make $130,000 per year, you should ideally limit your budget to $390,000. When setting up your budget, you also need to account for all ongoing costs linked to homeownership. These include your repayments, property taxes, insurance, and maintenance costs. If you plan to have a smooth financial transition into being a homeowner, setting a budget and sticking to it is paramount.

Select the Right Lender

There is more to selecting a mortgage provider than going with the one that offers the lowest interest rates. In some cases, the fees you end up paying through the course of the loan might offset any interest rate advantage you think you have. Flexibility in terms surrounding repayment frequency and making extra payments needs your attention. The reputation of a lender and its customer service levels also play in role in making the right decision.

 Select a Suitable Type of Loan

Next in line with tips for buying a home is to determine which kind of mortgage works best for you. For instance, an adjustable-rate mortgage (ARM) might work well for you if you plan to move in ten years or less. If you are in it for the long haul, a fixed rate alternative might serve as a better bet. Then, you also get to choose from VA loans, reverse mortgages, 203K rehab loans, and jumbo loans. Since selecting the right kind of loan might seem daunting, consider simplifying the process by speaking with a mortgage expert.

 Get Preapproved

Among the most popular home buying tips for first-time buyers is to get a mortgage preapproval. Once you get preapproved, you know just how much money you qualify to borrow. This gives you the means to look for homes that match your budget. Incidentally, you might be eligible to borrow as much as three times your gross annual income. Besides, the process of getting preapproved might be easier than you think. All you need to do to get started is contact your mortgage provider or loan officer.

Think About the Down Payment

Depending on your credit score, the least you need to set aside as a down payment for a Federal Housing Administration (FHA) insured loan is 3.5% or 10%. If you qualify for a Fannie Mae Home Ready Loan, you may put down as little as 3%. However, no matter which kind of loan you get, you will also need to account for closing costs. If you wish to build equity in your new house soon, making a larger than required down payment will hold you in good stead.

By making a down payment of 20% or more, you indicate to the seller that you are serious about making the purchase. Going forward, it also reduces the total amount you end up paying as interest.

Buying a home without making a down payment is possible. However, this depends on whether you meet the required eligibility criteria. Zero down payment loans come in the form of USDA loans and VA loans. If you end up getting a no down payment mortgage, you will, in all likelihood, have to pay for mortgage insurance.

Work With a Reliable Real Estate Agent

There are scores of home listings you cannot find online, which is why working with a real estate agent makes sense. What also helps is that buyers don’t have to pay agent fees in almost all situations. These fees are typically paid by sellers. A seller usually pays around six percent of a home’s selling price as commission, and this is split between the seller’s and buyer’s agents.

When selecting an agent, look for one who has local experience as well as the knowledge that is required to make the process as seamless for you as possible. A good real estate agent is one who:

• Is easy to contact
• Helps you find need-based listings
• Assists you in finding a home inspector
• Partakes in the home inspection process
• Has good negotiation skills
• Communicates with the seller’s agent and your attorney
• Addresses requests for repairs
• Finalizes the closing

Pay Attention to Season-Based Competition

The time of the year you plan to buy a house tends to have an effect on the competition you face from other prospective homebuyers. Spring and early fall account for the two busiest periods in real estate sales.  This is because several buyers wish to move during warm weather, and settle in place before the beginning of a new school year.

Many sellers list their homes during these periods to make the most of increased demand. However, while there is an increase in inventory during these months, you also tend to face more competition.

Buyers tend to thin out during the colder months, which results in reduced competition. This can also lead to better deals because sellers who haven’t managed to sell their homes in earlier months become more open to negotiation.

Bear in mind, though, that this aspect can vary based on different regions and properties, as well as an owner’s reason for selling.

 Consider the Time Factor

Experts often suggest that buyers should make quick decisions, especially in markets that have high competition. Making a quick decision in this case does not mean a few hours or days. However, when a market is awash with completion, waiting for even a week to make an offer might be too late. If a home you’re interested in has other prospective buyers, making an offer quickly might be the order of the day.

The flip side is that many sellers pulled their homes off the market when the COVID-19 pandemic struck in March and April of 2020. Many of these homes would, in all likelihood, get relisted again in the coming months. As a result, exercising a little patience might give you access to more homes from which to choose.

Make a Reasonable Offer

Once you’ve narrowed down on a house you wish to buy, you need to make an offer. Your real estate agent can help you with this, by carrying out a comparative market analysis. This step gives you an indication of whether the asking price of a home is in line with other comparable homes in the area and helps you arrive at a suitable offer price.

The offer you make may include one or more contingency clauses. One can surround the independently appraised value of the home in comparison to its asking price. Another can involve a successful home inspection. Some offers also have contingencies that depend on buyers’ mortgages being fully approved. A drawback with including too many contingency clauses in your offer is that they might act as a deterrent from a seller’s perspective.

Making an offer usually requires placing a deposit, which can be 0.5% to 2% of a home’s selling price. This indicates that you are serious about your offer. Upon accepting the deposit, a buyer takes the property off the market. If you opt out of the deal for any reason other than those listed as contingencies, you stand to lose all or part of the deposit amount.

Your real estate agent can assist you in getting all the required paperwork in order. Your offer is then submitted to the seller’s agent.

Carry Out a Home Inspection

Home inspections give buyers the ability to identify minor and major issues with homes before closing. It is not without reason that offers include contingency clauses surrounding home inspections. This contingency clause gives buyers the ability to back out of their offers without paying penalties if home inspections reveal significant defects.

The home inspector you hire should carry out a thorough inspection of the house you wish to purchase, and make note of the following:

• All minor and major defects as well as safety issues
• Items that need to be serviced, repaired, or replaced
• Items that make the cut as of now but need close monitoring

 A good home inspector should give you an indication about the routine maintenance you may look forward to, which can be important if you’re a first-time homebuyer. In case a home’s condition is not up to the mark, you may ask the seller to address the same or provide credits toward repair costs at closing. Once you buy a home, you may use the home inspection report to prioritize repairs and upgrades.

 Get the Final Mortgage Approval

Having made your offer, and with the home’s inspection out of the way, you need to get your mortgage’s final approval from your lender. Your lender evaluates the property, and if it’s okay with the selling price, it approves the property. Your lender will want proof of home insurance at this stage. You may also expect close scrutiny of your financial records before the final approval.

Close the Deal

Closing on the sale/purchase is the last step. This typically involves a meeting with the seller or a seller’s representative, your real estate agent, the lender’s representative, and in some instances, a closing agent. This final step involves paperwork surrounding approving the purchase and transferring the title, as well as paying the seller. Closing costs can be up to two percent of a home’s selling price.

If you can follow these tips for buying a home in 2021, consider yourself to be on the way to becoming a successful homeowner. Fortunately, professional assistance that can guide you in finding the right kind of home loan is always close at hand.

When buying a home, it is important to identify the differences between primary residences, second homes, and investment properties. This is because the classification that your new home falls under has a bearing on mortgage requirements as well as property taxes. When you apply for a new mortgage, how you wish to use the property you plan to purchase will be among the first few questions you need to answer.

What is a Primary Residence?

A primary residence is a home in which you live most of the time. From a lender’s perspective, a residence qualifies as a primary home if it meets these criteria.

• You move into the home within 60 days from closing.
• You live in the home for the most part of the year.
• Your workplace is located within a reasonable distance of the home.

Getting a mortgage for a primary residence is typically easier than getting a mortgage for other types of occupancy. In addition, borrowers can also benefit by getting lower mortgage rates. This is mainly because lenders view mortgages for primary homes as safer bets since such homeowners are more inclined to keep up with their repayments.

If you plan to refinance your primary residence’s mortgage down the line, your lender will require that you prove your residence by providing documentary evidence.

What is Secondary Home?

Quite like the name implies, a secondary home is a home where you plan to live occasionally. The older population makes up for a significant chunk of homebuyers in this category, often because they have paid off their primary home mortgages.  A lender would view a property as a secondary home if:

• It is a single-unit dwelling.
• You have exclusive control over the home.
• You reside in it for some time during the year.
• The home is not subject to any kind of property management, timeshare, or rental agreement.
• It is suitable for occupancy throughout the year.

Lenders might require that your secondary home be some distance from your primary residence, with a 50-mile distance being a fairly common requirement. In case the distance is lesser, your lender might view your new purchase as an investment property, subjecting you to stricter eligibility criteria and higher interest rates.

When it comes to taxation purposes, a property can qualify as a secondary home if you have not rented it out for 180 days or more through a year, and have spent some time there yourself too.

What is an Investment Property?

Simply put, an investment property is one through which you plan to generate income. While you may choose to rent out an investment property, you also have the option of making it your own residence. However, in this case, any other property that you rent out (your primary home, for instance) would be viewed as an investment property. Commercial properties can also fall under this segment.

A lender would typically view a home as an investment property if:

• You rent or lease it out.
• You plan to flip the property and make a profit.

If you’ve told you a lender that you plan to lease or rent the home you wish to purchase, you will need to provide a lease/rent agreement to confirm that the property has a tenant.

From the taxation point of view, investment properties are ones that are used solely for the purpose of generating income. Homes that are rented out for 180 days or more in a year usually fall under this category.

How Do Mortgages for These Types of Properties Differ?

The type of mortgage you may qualify for has a bearing on the occupancy status of the house you wish to purchase.

Alternatives for Financing

If the home you wish to buy will serve as your primary residence, you may apply for a conventional loan, FHA loan, a USDA loan, or a VA loan depending on the type for which you qualify. When it comes to getting financing for a second home or an investment property, while you can think about getting a conventional loan, you have other options as well. These include getting a cash-out refinance or a home equity line of credit (HELOC) on your existing home. Hard money loans are usually viewed as last resorts because they come with higher costs and lower loan-to-value (LTV) ratios.

Mortgage Interest Rates

Lenders make available their most competitive interest rates for mortgages taken out on primary residences. The rates that lenders advertise are ones that you may expect when taking a mortgage for a primary home.

Interest rates for mortgages on second homes can be up to 0.5% higher than rates for primary homes because lenders view the former as higher risk bets.  The perceived risk is even higher for investment properties. As result, you might end up paying up to 1% more as an interest toward a mortgage for an investment property when compared to a mortgage for a comparable primary residence.

Down Payment

Depending on the type of loan you get for a primary residence, you might need to pay 0% to 20% of the home’s selling price as a down payment.  With a loan for a second home, you would typically need to pay at least 10% as a down payment. For investment properties, expect to pay at least 20% to 25% as a down payment.  Lenders would also require LTV ratios to be 70% or lower. If you wish to refinance an existing mortgage to fund your second home or investment property purchase, lenders would look for at least 25% equity.

Requirements for Qualifying

Between the three, meeting qualifying requirements for a primary residence mortgage is usually the easiest. These include having a steady source of income, a fair to good credit score, and a debt-to-income ratio that falls within permissible guidelines.

When it comes to getting a loan for a second home, your lender will want to establish that you have adequate money to cover your existing mortgage’s repayments, your day-to-day-expenses, as well as payments toward the new mortgage. It is not uncommon for lenders to require that borrowers have enough cash reserve to make repayments toward both mortgages for at least six months.

Qualification requirements for investment properties are largely similar to those for second homes. However, lenders might also require borrowers to show some experience related to property management. If your lender permits, applying the rental income you anticipate toward your debt-to-income ratio might work well for you. In this case, you can get up to 75% of the expected rental income to count toward the income requirement.  However, this would come with extra paperwork. You might have to go through a specialized appraisal that highlights comparable rent prices as well.

What Happens If You Claim an Investment Property to Be Your Second Home?

Misrepresenting the occupancy status of a home you purchase is against the law. However, this does not stop some homeowners from classifying investment properties they purchase as their second homes.

Bear in mind that intentionally misrepresenting how you plan to use the property so you benefit through relaxed mortgage requirements is viewed as occupancy fraud. Fines in such cases can be rather steep. You may also be subject to prosecution and might have to serve jail time if convicted.

Lenders pay due attention to this aspect, and they can use different methods to verify the occupancy status of homes for which they provide mortgages. Physical verifications were fairly common until not long ago. Some lenders still rely on random home visits to verify just who lives in any given home. In addition, lenders now make use of technology for verification. Data analysis plays an important role, where data from your tax information, credit bureau files, and utility bills help establish whether your actual address is different from the one you provide in a mortgage application.

Another drawback of lying about a home’s occupancy status is that it can make you a defaulter on your mortgage. If your lender finds out about any such misrepresentation, you might be required to repay the entire loan immediately. If you cannot, you risk facing foreclosure, and this could result in you having to forfeit your home.  In extremely complicated cases, lenders have even been known to inform the Federal Bureau of Investigation (FBI).

There can be situations that are not fraudulent which may involve a primary residence turning into a second home or an investment property.  This may happen if you relocate to a different neighborhood or a different city and end up buying a new home to use as your primary residence. In this case, you need to inform the mortgage provider of your old home about the change in the situation.

Tax Benefits

*For informational purposes only. Please consult with your tax advisor.

No matter whether you are a first-time homeowner or buying your second or third home, you can claim deductions toward interest payments, property tax, and insurance payments.

With an investment property, you need to include the rental income in your total taxable income. Deducting expenses that you incur in the property’s maintenance from your taxable income is a possibility.

If you rent out a second home for less than 14 days per year, you don’t need to include the same in your taxable income. You would need to include the rental income in your taxable income if you rent out the property for more than 14 days through a year. In addition, you typically cannot seek deductions toward maintenance and renting costs with second homes.

Homeowners need to be aware of the change in the deduction limit on mortgage interest that came about owing to the 2017 Tax Cuts and Jobs Act (TCJA). Before the act was passed, homeowners were allowed to claim deduction on interest paid for up to $1 million in mortgage debt. As of now, the limit stands at interest paid on up to $750,000 in principal amount. The limit is expected to roll back to $1 million after 2025. Existing homeowners who got their mortgages before December 15, 2017, are still subject to the old regulation.

Can You Reclassify a Second Home as an Investment Property?

There are instances when homeowners think about turning their second homes into rental properties after the purchase. Changing the occupancy status of a home within the first year might not be the best way forward, as you may then be subject to an occupancy fraud-related investigation. However, lenders can’t do much if borrowers choose to go down this path after repaying their mortgages for a few years.

Homeowners who wish to reclassify second homes as investment properties need to file their taxes accordingly while informing the IRS about their new rental income. They also need to update the occupancy status of their homes if they plan to refinance their existing mortgages.

Reclassifying a Second Home or an Investment Property as a Primary Residence

While you can move into a second home or an investment property and use it as your primary residence, there is more to it than that. Given the tax benefits that come with primary residences, it is best to keep the IRS informed.

Homeowners who wish to make investment properties their primary residences should check if they qualify for a 1031 exchange. This gives owners of investment properties the ability to use proceeds from the sale of one rental property to purchase another. By doing this, homeowners can reduce the amount of money they pay toward depreciation rapture and capital gains taxes.

Conclusion

When you think about applying for a mortgage, expect your lender to ask what type of property you wish to purchase. Getting a mortgage for a primary residence is typically the easiest, and these mortgages tend to come with the best interest rates. If you plan to buy a second home or an investment property, it is normal to face more stringent eligibility criteria. In case you’re not sure about the classification of your desired purchase, speaking with a loan officer might be in your best interest.

DISCLAIMER:

CONSULT WITH YOUR TAX ADVISOR. 30-YEAR FIXED-RATE MORTGAGE:  THE PAYMENT ON A $200,000 30-YEAR FIXED-RATE LOAN AT 3.875% AND 80%LOAN-TO-VALUE (LTV) IS $940.14 WITH 0 % POINTS DUE AT CLOSING. THE ANNUAL PERCENTAGE RATE (APR) IS 4.026%. PAYMENT DOES NOT INCLUDE TAXES AND INSURANCE PREMIUMS. THE ACTUAL PAYMENT AMOUNT WILL BE GREATER. SOME STATE AND COUNTY MAXIMUM LOAN AMOUNT RESTRICTIONS MAY APPLY.

Data suggests that there is a significant increase in the number of American homeowners who are downsizing their homes. Statistics released by the National Association of Realtors highlight that in 2017, more than 10% of home buyers between 45 and 64 years of age were downsizing. According to a Zillow Group Housing Trends Report, more than 45% of homeowners in the given age group did the same.

Moving to a new and smaller home can be a daunting and time-consuming process. In addition, while it works well for some, it does not for others. This requires that you consider various aspects before making a decision.

The Benefits of Downsizing

Downsizing comes with multiple benefits, and here’s what you might expect.

• This is among the top reasons for downsizing. If your existing home is mortgage-free, you might be able to buy a new home and still have some reserve money. If it’s not, you may look forward to reduced monthly payments with your new mortgage. Downsizing can lead to reduced property tax, insurance costs, as well as maintenance costs. It can also result in lower utility bills.
• Reduced clutter. Downsizing gives you a great opportunity to eliminate things you don’t really need or use. You might be surprised to find out just how many of your existing possessions actually end up making it your new home, simply because they provide little to no value.
• Easier to maintain. A smaller space reduces the time and energy you put toward maintenance, be it day-to-day or long-term. With less time spent on everyday upkeep, homeowners have more free time on their hands.

Possible Disadvantages of Downsizing

While moving to a smaller home comes with benefits, you also need to be aware of possible drawbacks that you might have to face.

• No spare room. A spare room comes in handy when you have to deal with someone who wishes to sleep over after a late night, or when you have out-of-town guests. When you downsize, you can say goodbye to your spare room. However, you’ll still have the couch in your living room.
• Fewer belongings. You will, in all likelihood, give away, throw, donate, or sell a number of your possessions before you shift into a smaller home. Some people might have a hard time dealing with this aspect, especially when it comes to items that could not make it because of lack of space or ones that have emotional value.
• Space restrictions. People who are used to living in large homes might feel cramped for space in smaller homes. In addition, fewer rooms might result in reduced privacy.
• Changes in social life. This essentially depends on the locality of the new home. If it’s in the same neighborhood as the existing one, there shouldn’t be too many changes. However, relocating to a new area might require adapting to big changes. For example, how quickly would you be able to make few friends?

If your only reason to downsize is to reduce your home loan expenses, other ways to go about the process might need your attention. For instance, you could consider switching from making monthly repayments to bi-weekly repayments. Refinancing your existing home loan might also work in your favor, given that interest rates are now at all-time lows.

How to Go About the Process?

Once you’ve decided that you wish to move into a smaller home, you will need to pay attention to several aspects. Streamlining the process ensures that you minimize the possibility of encountering problems along the way.

Plan for the Long-Term

Do not make a spur-of-the-moment decision when you plan to downsize. Take into account any extra space you might need, be it for working from home or having your grandkids over. Only you can determine just how much space you might need down the road.

Think About Hidden Costs

Buying a smaller home might lead to lower mortgage payments. However, you need to consider other costs as well. For instance, does your existing home need repairs? If so, how much might you need to spend to make it market-ready? In addition, will your existing furniture and appliances fit into your new home, or will you have to budget for new purchases? You also need to take into account the actual cost of moving as well as possibly higher property taxes and housing association fees.

Focus on Functionality

You obviously cannot take everything from your existing home to your new home when downsizing.  When deciding what to take and what not to, your main focus should be functionality.

• Decide on big items first. Scan every room in your house and identify all the big items. Among other things, these include all your large appliances such as dishwashers, refrigerators, and TVs. Does the new home have any of these? If not, will the ones you have fit well into the new space? Will the cost of moving a heavy item outweigh the cost of making a new purchase?
• Donate, sell, or throw away. Create separate spaces for items you wish to take with you, as well as for ones you will give away, donate, sell, or simply throw in the trash. Items you can consider giving away may include family heirlooms and possessions that carry sentimental value. This way, you know they’ll be taken care of well. Consider selling items of value you no longer need, as this gives you some extra cash. Donate items that aren’t valuable and you no longer need but still serve their purpose. Salvation Army gives you easy means to schedule a free pickup from your home for most types of items. Anything that does not make it to these three piles should head to the trash.
• Check storage and infrequently used spaces. Over time, various items get to spaces in homes that are rarely entered or used. When you start to clear out your existing home, begin by checking your attic, basement, closets, spare rooms, bathroom cabinets, and storage units in the kitchen. What you end up finding will include items you can sell, items that bring about fond memories, and just plain junk. Place them in the relevant piles you create.
• Furniture comes next. Moving into a new home does not imply that you revamp your furniture completely. Identify pieces of furniture that will fit comfortably in your new home, and also serve a purpose. Make sure that the doors and passageways of your new home are big enough to move the existing furniture you plan to take. The furniture that’s left goes into the give, donate, sell, or throw piles. With furniture you wish to donate, the Furniture Bank Network can work well in finding households in need that cannot afford to buy new furniture.
• Check all other spaces. This step requires that you go through each room with a fine-toothcomb, one by one. With the kitchen, you’ll probably find more items you wish to take than leave behind. This is because most of the things in kitchens tend to find frequent use. However, keep space restraints in mind when thinking about taking appliances, unnecessarily large utensils, and crockery/silverware that can do with replacement. When you move to the other rooms, such as your living room or bedrooms, make de-cluttering your main aim. Each time sentimentality creeps in, remind yourself of the all-important functionality.

In case you end up with a significant number of items you wish to hang on to but don’t have the required space in your new home, you might consider renting a storage unit.

Should You Buy or Sell First?

Generally, it’s a good idea to sell an existing home before buying a new one. This way, you don’t have to worry about your emotions getting the better of you. However, buying before selling might be the order of the day in some markets. This is an aspect that you need to discuss with your real estate agent in detail.

Buying First

Buying first makes sense in case you’re looking for a home in a market where sales are happening quickly. In such a scenario, you should be able to buy with cash or have a preapproval for a mortgage. You might also consider buying first in slow markets where sellers might be more willing to accommodate your requirements. For instance, you could make a conditional offer that links to the sale of your existing home.

In case you plan to rent your existing home, you can expect most lenders to consider 75% of the rent amount as income, provided there’s a signed lease in place.

Selling First

A conditional offer linked to the sale of your existing home might not work, especially if a seller has multiple offers. Most real estate agents suggest selling first mainly because they view this as a safer bet in terms of not losing out on commission.

Once you agree to vacate your home in a given time period, you might feel pressed to settle for a home that is not up to your liking. If a seller knows you’re in a hurry to make a purchase, negotiating for a better price becomes even harder.

If you’re selling first, make sure you negotiate terms that would offset problems you might face with your impending purchase. For instance, you can ask the buyer for more time until closing, which could be 90 days as opposed to the usual 60 days.

Alternatively, you can ask the buyer to consider renting the home to you for a short-term after the closing, which could be a month or two.  In this case, you should ideally offer a reasonable security deposit, as well as rent that covers the monthly cost of the new owner’s mortgage. If this is possible, both parties need to determine if their homeowner’s insurance companies provide suitable cover during temporary rent-backs.

Do You Need Two Real Estate Agents?

If you’re wondering whether you need to use the services of a real estate agent in the first place, know that while you need to pay a commission, it takes a lot of guesswork out of the process.

It’s not uncommon for people who wish to downsize to wonder if they need two real estate agents – one to buy and another to sell. To some degree, this depends on the localities of your existing and new home. For instance, out-of-area agents are not appreciated by local agents in some places.

Go through home pricing and comparable sales. This way, if an agent has contacts in your area, and your home is easy to price, the actual location of the agent doesn’t really matter. Besides, if you get an agent to handle both transactions, you might even be able to negotiate on commission.

A Checklist for Downsizing

Before making your decision to downsize, consider these points.

• Are you happy about your plan to downsize, or might you feel better if there’s another solution such as refinancing your existing mortgage?
• If you’re happy with the idea of moving, determine where you wish to live. Do you want to live in the same neighborhood, move away from the city, or find a home by the sea?
• Look at homes that really appeal to you and check if they fit in your affordability bracket. This gives you an indication of whether you might have to compromise on your needs.
• If you have an existing mortgage, would you want to pay it off completely before the sale?
• How comfortable would you be in getting rid of some of your possessions, be it selling things or simply giving them away?
• While you’ve purchased a home in the past, are you aware of all the possible home buying mistakes you need to avoid?

Conclusion

A number of people manage to downsize to smaller homes with success. The trick, in a way, is to find the right balance between what you really need and what you can do without.  While the process might seem intimidating at first, following some simple guidelines can ensure that you come out on top. If you need assistance at any step of the way, professional help is typically easy to find.  This includes finding a suitable lender, should you need a new mortgage.

DISCLAIMER:

30-YEAR FIXED-RATE MORTGAGE:  THE PAYMENT ON A $200,000 30-YEAR FIXED-RATE LOAN AT 3.875% AND 80%LOAN-TO-VALUE (LTV) IS $940.14 WITH 0 % POINTS DUE AT CLOSING. THE ANNUAL PERCENTAGE RATE (APR) IS 4.026%. PAYMENT DOES NOT INCLUDE TAXES AND INSURANCE PREMIUMS. THE ACTUAL PAYMENT AMOUNT WILL BE GREATER. SOME STATE AND COUNTY MAXIMUM LOAN AMOUNT RESTRICTIONS MAY APPLY.

Fall is typically not a popular time to buy a home. With several people expecting bonuses in the New Year – and with the holidays and cold weather to boot – many prospective homebuyers opt to wait for springtime or even summer. Data shows that home sales tend to drop during the fall months, only to pick up again around spring. However, if you are okay with shifting base in cold weather, buying a home during the fall might be worth your while.

Buying a home during the coming fall requires that you pay attention to different aspects. Ask yourself these questions so you may experience a smooth home buying process.

How Do Home Buying Seasons Work?

Come summer, you may expect the real estate inventory to heat up. It is common for sellers to place their homes in the market during summer. Prospective home buyers typically have the freedom to work around their schedules during this period, and they also look forward to favorable weather conditions. As a result, competition can be stiff, and bidding wars are not uncommon.

As fall begins to set in, people tend to get busier with their day-to-day affairs. While buyers usually drop in numbers, sellers try to take extra measures to sell their homes.  Quite like the weather, the market cools. For some, this can be an opportune time to buy a home.

What is the Interest Rate Scenario?

Existing interest rates on home mortgages make this a favorable time to buy a home. According to data released by Freddie Mac, the average interest rate on a 30-year fixed-rate mortgage stood at 2.88% as of Aug 8, 2020. This was 0.72% lesser than the same time last year. In the week that ended on September 11, 2019, the average interest rate was 3.56%. Interestingly, the average interest rate on a 30-year fixed-rate mortgage neared a peak of around 5% in the fall of 2018.

If the interest rate continues to drop in the coming months, fall might be a good time to get a loan for purchasing a home.  Even if interest rates begin an upward trend, the possibility of any steep rise by fall seems rather unlikely. Waiting until next year, though, might not be the best way forward. With 2021 being an election year, there is no way to predict which way the market might swing, and interest rates may well increase again.

By getting a low-interest rate, you get to repay less through the course of your loan. Also, reduced monthly payments can translate into you being able to afford a more expensive home.

What Are Sellers Thinking or Doing?

More often than not, homes that are up for sale during the fall were put on the market in the preceding months. These are usually homes that have not managed to find buyers through the summer.  One reason for this to happen is overconfident sellers who ask for more than what buyers are willing to pay. With their homes sitting on the market for months, most sellers begin to rethink their strategies.

It is common for sellers with unrealistic expectations to drop their expected selling prices during the fall. This is because they become eager to sell their homes, and might choose to accept lower-than-expected offers instead of waiting for six more months. By October, some sellers are willing to accept less than the market value of their homes.

Sellers are known to look at the tax consequences of keeping their homes on the market in the New Year. Since some may want to take advantage of their gains or losses in the ongoing tax year, you might find sellers who are inclined to get their homes off the market before the end of the year.

Do I have Many Options?

Inventory of homes up for sale tends to add up from the beginning of spring. As a result, several homes remain on the market through fall, and even up to winter. In winter, though, several sellers choose to take their homes off the market to minimize or avoid time-on-market penalties. If you feel you might have limited options from which to choose, carrying out some basic research will show you just how many homes are up for sale during this time of the year.

Will I Face Much Competition?

Most prospective homebuyers who have time to check property listings and attend open houses during the summer tend to get busier during the fall. What this means for you is reduced competition. Given that the school year gets underway and a new business quarter begins, fewer buyers remain in the market.  This becomes apparent when you attend open houses and do not come across many prospective buyers.

If you are wary about going through bidding wars when buying a home, fall becomes a suitable time to make your purchase. What also helps is that you get the ability to spend some one-on-one time with the seller, and you may use this opportunity to work your way to a better deal.

What Can I Expect From My Real Estate Agent?

Real estate agents usually go through a slow period from September through February. This makes them all the more eager to drive revenue. With time on their hands, it is common for real estate agents to go that extra mile to strike deals during the fall. While real estate agents should help buyers identify and avoid common home buying mistakes, they also need to provide situation-specific expertise. What you may expect from your real estate agent includes:

• Finding listings based on your specific requirements
• Selecting a home inspector
• Being a part of the home inspection process
• Addressing any repair requests
• Communicating with your attorney and the seller’s agent
• Negotiating an offer
• Finalizing the closing

What Do I Need to Know About Negotiating?

The market typically favors sellers during the summer months, where they get to set the terms. Come fall, prospective buyers dry up, giving you an upper hand at the negotiation table. This is because there is an increased possibility of motivated sellers making concessions during the colder months. Some sellers might give you enough time to go through the negotiation process and even offer to make arrangements that are convenient for you once they know you are a serious buyer.

Can I Benefit Through Tax Breaks?

Once you decide to move from being a renter to a homeowner, you may look forward to some tax benefits. New homeowners who know of applicable tax deductions can use their homes as legitimate tax shelters. If you plan to buy a home during the fall, property tax and mortgage interest deductions apply to your income for the entire year, even if you purchase in December. What you need to understand is that all the payments you make before the loan’s closing are tax-deductible. Since these amounts can be significant, you can look forward to some serious savings through your taxes.

Does the Fall Make Flaws More Apparent?

Yes, colder months offer a truer picture of what homes actually look like. Consider this – you look at home in May and it appears picture-perfect, with plants in full bloom. However, unknown to you, the foliage manages to provide excellent camouflage to a cracked wall and peeling paint. When you look at the same home in the fall, without its green cover, you get to see a completely different picture. Besides, this also gives you an indication of how a household up when the going gets tough, either in the form of rain or chilly temperatures. When you carry out a home inspection during the fall, you decrease the possibility of getting nasty surprises months after you make your purchase.

Will I Get a Clear Picture of the Neighborhood?

Several people tend to go on vacation during summers when schools are out. This might lend an appearance of emptiness to some neighborhoods. Once the school year gets underway in September, people return to their regular routines. This makes it a good time to get a clearer picture of a neighborhood, be it through driving around, checking local schools and health care centers, or even shopping for basic necessitates.

Will I Get the Professional Help I Need to Get Through the Process?

Quite like real estate agents, most of the professionals associated with the real estate industry tend to experience a lean period during fall and winter months. As a result, they remain enthusiastic about any work that comes their way. For instance, finding a mover to help you move over a weekend is much simpler in fall than in summer, because summer makes for a much busier period. This also applies to services provided by home inspectors, contractors, painters, plumbers, and electricians. Other than quicker availability and more attention, you may also look forward to discounted or lower prices when seeking professional services in the fall.

If you need to shop after moving into your new home, the holiday season is the perfect time to look for bargains. No matter whether you need home appliances or furniture, you stand to benefit through a range of seasonal specials thrown your way.

Are There Any Tips That Can Help Me Buy the Right Home?

Following some basic home buying tips can simplify the process and help you avoid some of the common pitfalls.

• Check your creditworthiness. You need to look at your creditworthiness at the onset because your credit score has a direct impact on the interest rate you get on your mortgage. You stand to get the best rates if your score is over 750. Scores between 700 and 750 also tend to get competitive rates. If your credit score is any lower, you may expect to pay higher interest.
• Choose the right type of loan. Depending on whether you qualify, you might benefit by getting a government-backed loan. For instance, the United States Department of Agriculture (USDA) provides home loans for rural homebuyers as well as for homebuyers in suburban areas of large cities. The Department of Veterans Affairs (VA) provides loans for veterans as well as their families. When selecting the right loan, you also need to educate yourself about different types of interest rates and loan terms.
• Think about the down payment. You need to determine just how much money you can put toward the down payment of your home. Bear in mind that the more you pay toward the down payment, the lesser you pay in interest through the course of the loan. However, while conventional knowledge suggests paying at least 20% of a home’s selling price as down payment, some people get on the homeownership path by paying little to nothing as a down payment. Examples of no down payment loans include USDA loans and VA loans.
• Get cash to the table. With adequate inventory to go through, buyers tend to stand at an advantage when negotiating. You can further swing the momentum in your favor by using cash to make your initial payment. Other than helping you seal a deal quickly, a cash payment can also wipe out any apprehension a seller might have when accepting a check issued by a third-party lender. A cash payment gives a seller the peace of mind of having secured the required funds, and the risk of losing out on a deal during the closing stages all but disappears.

Conclusion

If you have been thinking about buying a home, this fall may be as good a time as any to put your plan into action.  Interest rates are at all-time lows, several sellers are keen to get their properties off the market, and you don’t have to worry about too much competition. If you wish to start the process, consider getting a pre-approval by contacting one of our loan officers.

DISCLAIMER:

30-YEAR FIXED-RATE MORTGAGE:  THE PAYMENT ON A $200,000 30-YEAR FIXED-RATE LOAN AT 3.875% AND 80%LOAN-TO-VALUE (LTV) IS $940.14 WITH 0 % POINTS DUE AT CLOSING. THE ANNUAL PERCENTAGE RATE (APR) IS 4.026%. PAYMENT DOES NOT INCLUDE TAXES AND INSURANCE PREMIUMS. THE ACTUAL PAYMENT AMOUNT WILL BE GREATER. SOME STATE AND COUNTY MAXIMUM LOAN AMOUNT RESTRICTIONS MAY APPLY.

According to the United States Census Bureau, millennials, those born between the early 1980s and early 2000s, now make up the country’s largest living demographic. Their numbers, without a doubt, are bound to have an impact on the housing market. While this generation has been slow to enter the housing market, millennial home-buying trends in Long Island go to show they have set the wheels in motion.

 

The Story So Far

Until recently, most millennials had to deal with student loan debts, unemployment, high rentals, as well as limited to no credit histories. The number of 18 to 34-year-olds now married stands at 30%, down from 47% in 1983.

Incidentally, while there are reports of people leaving Long Island, it appears that millennials are making a beeline toward here. A report released by the Long Island Association suggests that the population of those between 20 to 34 years increased by 7.6% from 2010 to 2015. Some of the reasons that are drawing millennials toward the Long Island housing bubble include job opportunities, larger homes, and good education.

According to a survey surrounding “the next generation of Long Islanders” that was part of a Newsday project funded by a Rauch Foundation grant, more than 60% of the millennials who took part felt that Long Island has a bright future. Around 85% said they feel proud when telling others that they live in Long Island. The same report also suggests that the main reason for millennials moving out of Long Island is the cost of living.

 

Long Island Real Estate Trends

The housing market in Long Island was doing considerably well before the onset of the Covid-19 pandemic. Data released by the Multiple Listing Service of Long Island shows that home sales in Nassau and Suffolk counties accounted for around $15.8 billion in the previous year. Long Island’s median home price in January 2020 stood at $480,000, which was 6.4% higher than it was a year ago. Nassau County’s home prices seemed to peak, almost getting at par with home prices in Suffolk County.

The good news for prospective homebuyers in Long Island is that the region’s home prices have risen more slowly when compared to the national average. While the Covid-19 pandemic managed to create a cloud of uncertainty even in the real estate market, low-interest rates and the fact that a home is a tangible asset are factors that millennials need to consider.

 

Long Island Real Estate Forecast 2020

The number of home sales in March 2020 dropped by more than 19% in Nassau County and by around 16.5% in Suffolk County when compared to the same month last year. Over the next few months, the number of sales is expected to remain low. Some real estate experts are of the opinion that Long Island home prices will remain largely stable, whereas some others feel they might drop by up to 5% before the end of the year.

Factors that have been working in favor of the highly competitive markets of Nassau and Suffolk include low inventory coupled with favorable mortgage rates. The proximity to New York City is also a factor that is affecting millennial home buying trends in Long Island.

The median selling price of homes in Suffolk County saw a 2.5% year-on-year increase from June 2019 to June 2020. The median selling price of homes in Nassau County increased by 0.2% during the same period. Incidentally, it looks like increasing prices in the five boroughs are driving millennial buyers toward Long Island, where prices still remain more affordable.

 

The Road Ahead

Millennials typically have a different take on long-term investments and homeownership when compared to previous generations. Several choose to focus their energies on careers instead of family life. However, with access to money, millennials are now buying homes not just to live in, but also as a means of investment.

Reasons why you, like other millennials, may consider looking at what the Long Island housing market has to offer include:

• Affordability
• Typically, larger homes than in the boroughs
• Open floor layouts
• Proximity to work
• Good schools
• Easy access to public amenities
• Newer homes are more energy efficient

 

Millennial Home Buying Trends

According to a report released by Realtor.com, millennial homebuyers continue expanding their mortgage share despite the Covid-19 outbreak. It suggests that millennials appear to be more rooted in place when compared to baby boomers and Generation X. The report highlights that millennials are now spending as much as baby boomers when buying primary homes with mortgages, and also taking larger loans because of low down payments.

 

Going Suburban

Data released by the National Association of Realtors shows that only 15% of all millennial homebuyers purchased houses in urban areas last year. The number stood at 17% in the preceding year, and at 21% in the year before. This goes to show that an increasing number of millennials are choosing to move away from the inner city.

Zillow, a prominent real estate company, recently reported that close to 50% of all millennial homebuyers prefer suburbs or rural areas as opposed to the city. Incidentally, one of the main reasons that many millennials consider moving outward is the rising prices of real estate in the city.

Buying a house in Long Island gives a buyer the ability to make the most of what the region’s indoor-outdoor alternatives have to offer. For starters, this generation brings with it a typical appreciation of nature. In addition, millennials tend to care about their overall wellbeing and prefer living in homes that come with outdoor spaces. It is not without reason that bringing nature into homes is attributed to improving health.

 

Size Matters

An article in the Realtor Magazine points out that several millennials are moving beyond typical starter homes and opting for homes that are bigger and pricier. More than 30% of homes purchased by millennials were priced at 300,000 or more, which is a considerable step up from the $150,000 to $250,000 bracket that most first-time homebuyers prefer for their first homes.

However, there are other millennial buyers in the Long Island housing market who prefer smaller well-designed functional homes that suit their lifestyles. In this scenario, they look forward to benefits in the form of lesser maintenance, reduced expenses, as well as increased energy efficiency.

 

Technology All-Around

Until not so long ago, homebuyers found real estate professionals through the Yellow Pages, referrals, or by simply attending open houses. Millennials have grown up around technology, and they make the most of the online world to find just about everything, from an automobile to a holiday destination, to even a life partner. There’s no reason for them to approach the house hunting process any differently.

A report about home buying and selling trends in 2019 released by the National Association of Realtors highlights that more than 80% of older millennials found homes they purchased through mobile apps.

The use of technology does not limit to finding homes. An increasing number of millennials, most of who are tech-savvy, wish to benefit through the changing landscape so they may make their lives more efficient and comfortable. As a result, technology-driven millennials tend to look for automated features that give them the ability to control aspects such as security, lighting, media, and temperature control through mobile apps.

 

Pets

It is common for homebuyers to address the needs of their families when making decisions about which homes they should purchase. In the case of millennials with young children, and even ones who haven’t started their families, their pets get due priority. This is why several millennial homebuyers look for outdoor space, which is easy to find across Long Island.

Millennials who make the shift from high-end rentals to townhouses or single-family homes in the suburbs realize that they might have to give up on some features when it comes to making their pets feel more at home. Some even prefer outdoor space for their pets over parking space.

 

Customizable and Multi-Functional

It is common for millennial homebuyers to look for open layouts, efficiency, simplicity, and the ability to customize. As a result, not many favor the typical single-family home with a fixed number of bedrooms and bathrooms along with a dining room, a living room, and a kitchen. Instead, they prefer homes with rooms that do not have any predetermined purpose.

Walls don’t play an important role for millennials, which is why they look for homes with open floor plans. For instance, young families want open spaces so their children may run around freely. This generation also likes to entertain, which is why they prefer homes that combine the kitchen, the dining room, and the living room into a single functional space.

The ability to customize is considerably important for millennial homebuyers. According to a study carried out by Ketchum Global Research & Analytics, Hanley Wood, Metrostudy, and TRI Pointe Group, more than 70% of millennials feel that the ability to customize a new home is very or somewhat important.

 

Energy-Efficient Homes

Millennials are fairly conscious of the environment and the role they play in their degradation. They have, after all, grown up in an atmosphere that is rife with talk about climate change. Homes become important targets, given that they are energy-intensive. In the United States, homes account for around 20% of the country’s total energy consumption. Several millennial homebuyers in Long Island don’t mind paying a little extra money to buy energy-efficient homes that will result in long-term savings.

Some of the aspects that millennials take into account when buying energy-efficient homes include:

• Solar energy
• Use of sustainable building material and non-toxic paint
• Energy-efficient appliances
• LEED-compliant lighting
• Smart thermostats

While energy-efficient homes result in long-term savings, their owners also feel that they are doing their bit toward helping the environment. From the point of view of a builder or a seller, transparency surrounding the materials and products used becomes especially important.

 

Fixer-Upper Homes

While Long Island house prices are lower when compared to prices of homes in the city, not everybody can afford to buy a great looking home. When it comes to millennials who are looking for entry-level homes, which is most of them, even average house prices in Long Island might seem out of their reach. This is why some millennials have already started looking for fixer-upper homes. These homes are typically priced lower than existing market rates.

Usually, these properties find favor with people who want to purchase fixer-uppers, carry out the required repairs, and then sell them for a profit. However, given their relatively lower selling prices, some millennials are now looking at buying these homes and renovating them for their own use.

 

Desired Amenities

A survey carried out by the National Association of Home Builders showed that around 80% of millennial homebuyers thought of patios as desirable or essential in homes. More than three-fourths of those who participated in the survey desired that their homes have Energy Star rated windows. Having a laundry room topped the list of desired amenities, with hardwood front door exteriors taking the second spot. Other top features that millennials look for in homes include:

• Garage storage
• Walk-in pantry
• Exterior lighting
• Ceiling fans
• Front porch
• Table space for dining
• Double sink
• Deck
• Central Island
• Shower stall and tub in the master bathroom
• Drinking water filtration

Amenities that made it to the least desired list include:

• Elevators
• Cork flooring
• Laminated countertops and flooring
• Wine cellar and wine cooler
• Bathroom aids

Conclusion

Given that a large number of millennials have come of age and many more are on their way, it is only natural for them to make inroads into the real estate market. The positive millennial home buying trends in Long Island, as a result, do not come as a surprise.

If you plan to look at what the Long Island housing market has to offer, it might be in your best interest to seek professional help. This way, you can benefit through expert advice when it comes to selecting the right property and you also get to narrow down on the mortgage that suits you best.

 

DISCLAIMER:

30-YEAR FIXED-RATE MORTGAGE:  THE PAYMENT ON A $200,000 30-YEAR FIXED-RATE LOAN AT 3.875% AND 80%LOAN-TO-VALUE (LTV) IS $940.14 WITH 0 % POINTS DUE AT CLOSING. THE ANNUAL PERCENTAGE RATE (APR) IS 4.026%. PAYMENT DOES NOT INCLUDE TAXES AND INSURANCE PREMIUMS. THE ACTUAL PAYMENT AMOUNT WILL BE GREATER. SOME STATE AND COUNTY MAXIMUM LOAN AMOUNT RESTRICTIONS MAY APPLY.

When you take a home loan, you end up repaying significantly more than you borrow. This is because the loan attracts a tidy sum as interest, as well as fees in different forms. The amount you borrow, the loan term, and the interest rate have a direct bearing on your monthly repayments. If you, as a probable or existing homeowner, wish to reduce your home loan expenses, you may do so in different ways.

New Home Owners

If you wish to keep costs low when getting a home loan, you must compare multiple mortgage providers. While selecting the right mortgage lender requires that you pay close attention to interest rates and fees, you also need to consider aspects such as flexibility in terms and customer service. There are other ways in which new homeowners may reduce the financial burden of their home loans.

Select a Suitable Loan Term

This aspect works in two ways. If you wish to keep your monthly repayments low, consider opting for a longer loan term. However, while this reduces the amount you need to pay each month, you end up paying more through the course of the loan in the form of added interest.

If you, on the other hand, wish to lower the overall cost of your loan, selecting a shorter loan term may work better for you. This way, while you end up paying lesser in interest, you need to make higher monthly repayments.

Make a Big Down Payment

Some people might qualify for a home loan without making a down payment, or by paying less than the usually required 20%. However, consider paying as much as you can if you wish to lower the cost of your home loan. Making more than a 20% down payment comes with the following benefits:

• Less interest to pay through the course of the loan
• Reduced upfront fees
• Lower monthly repayments
• No need to pay for private mortgage insurance (PMI)
• Possibility of getting a more competitive interest rate

Get an Interest-Only Mortgage

If you wish to keep your monthly repayments low during the early years of the loan, getting an interest-only mortgage might work well for you. A typical interest-only mortgage is broken down into two phases. In the first stage, you make payments only toward the interest of the loan, and this helps keep your initial repayments low. In the second stage, you make repayments toward the principal and the interest. Bear in mind that these mortgages offer no more than temporary respite. In the second phase, you will be burdened with a higher than usual repayment.

 

Lower Your Closing Costs

The money you end up paying toward closing costs can be significant. In most cases, closing costs account for around 3% to 6% of the loan amount. So, if you borrow $300,000, you may pay $9,000 to $18,000 as closing costs. If you pay close attention to the process, you may take measures to reduce the closing costs.

• Compare loan estimates. Compare loan estimates provided by different lenders because these give you a good indication of how much they charge as closing costs in the form of various fees. Make sure you get legally binding loan estimates, and not just closing costs or fee itemization worksheets.
• Identify probable savings. If the service is one that you’re allowed to shop for, choose the service provider that works best for you and that may help reduce fees. The types of services that you may be able to shop for the service provider include title search, title insurance, settlement services, pest inspection, and surveys. Comparing service providers across these realms may lead to savings. If you plan to compare title and settlement service providers, remember that they usually require adequate time to carry out research and prepare documents.
• Pay close attention to fees. Some lenders charge separate fees for services such as loan origination and underwriting, and other lenders may combine these types of charges under a single fee. This is normal. However, if you come across any fees on the Loan Estimate that you do not understand, you have reason enough to be wary. If you’re unsure about why you should ask the lender why itis charging the particular fee. Do not hesitate to ask.
• Get the seller to contribute. If the market is not favorable for sellers, you might be able to convince a seller to contribute toward closing costs. However, this might not happen when inventories are low, and there is stiff competition between buyers.
• Finance your closing costs. If you don’t have enough money to cover closing costs, you might consider financing the closing costs into the loan amount. This may help if you plan to get a mortgage to buy a new home, and even if you wish to refinance your existing mortgage. In this case, you don’t need to pay the closing costs when you get the loan. Instead, the amount you need to pay as closing costs is added to the principal amount. In some instances, closing costs are replaced with a higher interest rate on the loan.
• There is often room for negotiation when it comes to closing costs, especially if you take the time to understand all the fees and discuss them with your lender. Comparing multiple offerings from various lenders puts you in a better position at the negotiating table. Also, some lenders are known to provide incentives for home loans to existing customers. These may come in the form of discounted fees or more competitive interest rates.

Existing Home Owners

Existing homeowners who wish to bring down the costs associated with their home loans may use a different way to get the results they seek.

Think Forbearance

If you’re having trouble making your monthly payments on time, consider applying for mortgage forbearance. If your lender or loan servicer approves your application, you delay making your monthly payments or make lower payments for a predetermined time. Bear in mind that forbearance only provides temporary relief and interest continues to accrue on the amount you owe. Also, once the forbearance period is complete, you will need to start making payments.

You may qualify for mortgage forbearance in instances that include major illnesses, natural calamities, or loss of employment. Whether or not the forbearance is reported on your credit report depends on the terms and conditions laid down by your lender and/or applicable laws and regulations. If you’re facing financial hardship, consider applying for forbearance before you miss a payment.

 

Refinance

Refinancing your home loan can lower the cost of your loan in two different ways.

• Extend loan term to reduce monthly payments. If you wish to refinance your home loan to lower your monthly repayments, consider opting for a longer loan term. For instance, if you have a 15-year mortgage, refinancing to a 30-year loan will result in a significant drop in monthly payments. If you have an existing 30-year mortgage and have paid it off for a few years, refinancing to another 30-year loan may also have a similar effect. However, this will mean that you end up paying more interest in the long-term.
• Reduce loan term to reduce interest. If you’re looking at long-term savings, refinancing into a reduced loan term might be the way to go. While this results in lesser interest accruing through the course of the loan, you will need to make higher monthly repayments.

Make Extra Repayments

For most mortgage loans, it is well within your rights to make an extra payment toward your home loan at any time during the year. When you make extra payments, you need to specify that the money is to be applied toward the principal. Remember that the extra payment does not automatically go toward the principal. In the absence of your specific instructions, your extra payments will go towards the next regular principal and interest payment and may not pay off the loan as quickly.

You may choose to make a lump sum payment at any time, you may make larger than required monthly payments, or you may simply make one extra payment each year. At existing rates, making one extra payment each year toward a 30-year mortgage can reduce the loan term by around four years. In addition, you would also save a tidy sum as interest you don’t have to pay.

If you have less than 20% equity in your home, making extra repayments can help you get to the 20% mark faster. By doing this, and depending on the type of loan you have, you may no longer have to pay for mortgage insurance. FHA loans, for instance, have mortgage insurance for the life of the loan. However, you can drop the mortgage insurance on an FHA loan if you refinance into a conventional loan, where private mortgage insurance can be canceled after you build 20% equity.

Switch From Monthly to Bi-Weekly

Several lenders give borrowers the ability to choose between making monthly and bi-weekly payments. Opting for the latter gives you an easy way to repay your mortgage faster. This, in turn, results in lesser interest that you need to pay through the course of the loan.

How this works is simple. When you make monthly payments, you end up making 12 payments in a year. When you switch to bi-weekly payments, you essentially make half a payment every two weeks. This amounts to 26 “half payments” in a year, or 13 complete payments in all. What you do when you switch from monthly to bi-weekly payments is add an extra payment each year.

Work on Cancelling Your PMI

If you have a zero or low down payment loan, or if you’ve paid less than 20% toward the down payment of your home, you keep paying for private mortgage insurance (PMI) until you build at least 20% equity in your home. Bear in mind, though, that the mortgage insurance might remain in place for longer depending on the type of loan you have, with FHA loans being a prime example. As a result, the first step is to contact your lender and determine if you still need to keep paying for mortgage insurance.

If you have a conventional loan, you need to build at least 20% equity in your home and then you can ask your loan servicer to cancel the mortgage insurance. With a conventional mortgage, once the loan to value (LTV) ratio drops to 78%of your home’s original appraised value, PMI cancels automatically. If a new home appraisal puts your LTV ratio to below 78%, the PMI also cancels.

 

Consider a Loan Modification

If you feel you might fall behind in keeping up with your regular mortgage payments, think about asking your lender if you qualify for a loan modification. You may also think about requesting a loan modification if you do not qualify for a refinance loan.

If your lender approves your application, you may be able to modify certain terms surrounding aspects such as monthly repayment amount, loan term, and even interest rate. More often than not, a loan modification results in a lower monthly repayment.

Loan modification might involve changing the type of your loan from a fixed-rate mortgage to an adjustable-rate mortgage (ARM), or vice versa. It may result in an extension of the loan term, a temporary or permanent reduction in interest rate, or bundling all past due amounts and the principal, to be amortized over a new loan term.

The benefits of opting for a loan modification program include lowering monthly payments, resolving a delinquency status, and avoiding foreclosure.

Look at the Property Tax You Pay

Take a close look at how much you pay as property tax. According to statistics released by the National Taxpayers Union, around 30% to 60% of all property in the U.S. is over-assessed. Simply put, this leads to inflated property tax bills. Unfortunately, less than 5% of taxpayers think about challenging their assessments. Incidentally, many people who do tend to get partial refunds.

If you feel your property might be over-assessed, you need to file a formal appeal to dispute this. The process varies from one state to another, and in some cases, even from county to county. While you might be able to file your appeal online in some states, others may require that you appear physically in court. In case you think that the discrepancy is huge, it might be worth your while to seek professional legal assistance.

No matter whether you need a loan to purchase a home or already have an existing home loan, there are steps you may take to reduce your financial burden. However, what you need to determine ahead of time is if you are looking for short-term relief or long-term gains. This is because lowering your monthly payments usually translates into a more expensive loan.

If you need a new home loan or are thinking about refinancing an existing loan, contact our experts to check if you might be able to save some money in the process.

DISCLAIMER:

30-YEAR FIXED-RATE MORTGAGE:  THE PAYMENT ON A $200,000 30-YEAR FIXED-RATE LOAN AT 3.875% AND 80%LOAN-TO-VALUE (LTV) IS $940.14 WITH 0 % POINTS DUE AT CLOSING. THE ANNUAL PERCENTAGE RATE (APR) IS 4.026%. PAYMENT DOES NOT INCLUDE TAXES AND INSURANCE PREMIUMS. THE ACTUAL PAYMENT AMOUNT WILL BE GREATER. SOME STATE AND COUNTY MAXIMUM LOAN AMOUNT RESTRICTIONS MAY APPLY.

An increasing number of homeowners across the country who have existing mortgages are thinking about going the refinancing way. The main reason behind this move is that mortgage rates have continued to slide in recent weeks owing to the ongoing Covid-19 pandemic. People who are thinking about refinancing their existing mortgages may also benefit by shortening the term of their mortgages, changing the type of mortgage they have, or even tapping into the equity they’ve built over time.

The Interest Rate Scenario

Financial markets in the U.S. have shown some stability in the last fortnight when compared to prior weeks. It seems like mortgage rates have bottomed out, and look to be increasing again. Freddie Mac reports that the average 30-year fixed-rate mortgage was 3.33% on April 2. It stood at 3.29% on March 5. However, compared to a year ago, it’s down by 0.75%.

The 15-year fixed-rate mortgage averaged at 2.82% on April 2. This was a slight increase when compared to the 2.79% average on March 5. In comparison to a year ago, the average interest rate dropped by 0.74%.

Even the 5/1 adjustable-rate mortgage average has experienced an increase since March 5, going from 3.18% to 3.4%. Over the last 12 months, the average has dropped by 0.26%.

Bear in mind that these are not the interest rates you will get if you choose to refinance your existing mortgage. The interest rate you get depends on multiple factors such as the lender you select, your creditworthiness, the equity you’ve built in your house, and a steady source of income.

Is Now a Good Time to Refinance?

Given that interest rates have stopped their downward spiral for now, there is no telling just how long the low interest rate atmosphere might prevail. As a result, waiting for rates to fall even further might be foolhardy.

It might make sense to get your application out of the way, because a number of lenders already have to deal with overworked employees. While the increased demand has resulted in some lenders hiring more employees, other lenders are choosing to play wait and watch – unsure of what role the new employees would play when interest rates increase again.

The existing interest rate atmosphere might work as a blessing for some homeowners, even if there is no further drop in rates. Data released by Black Night, an integrated technology and data and analytics solutions company, suggests that more than 11 million American homeowners could save around $270 each month by refinancing their mortgages.

Is Refinancing Right For You?

If your existing mortgage attracts 4% or more as interest, and if your credit score is above 720, you might benefit by refinancing your mortgage. However, there are several aspects you need to consider because even seemingly good deals can result in losses at times.

The Time Factor

Time plays different roles when it comes to thinking about refinancing a mortgage. For starters, just how long you plan to maintain your loan has a bearing on whether or not you should refinance. If you don’t plan to live in the house in question for the next five years or more, refinancing might not be the best way forward. This is because any savings you incur could be offset by the fees you end up paying.

Homeowners who plan to live in their existing homes for the long-term might benefit by refinancing their mortgages. The savings can be even more pronounced if you switch from a 30-year mortgage to a 15-year mortgage. In such a scenario, you would need to pay a higher monthly repayment. However, you could also potentially save tens to hundreds of thousands of dollars form of interest over the life of your loan.

Consider this – you have a 30-year fixed-rate mortgage of $100,000 with an interest rate of 9%. If you get a 15-year mortgage with a 5.5% interest rate, your monthly repayment would experience a negligible increase, rising from around $805 to around $817. On the other hand, if your 30-year fixed-rate mortgage for the same amount comes with a 5.5% interest rate, and the new 15-year mortgage charges 3.5% as interest, your monthly repayment would increase from around $570 to around $715.

You may use an online calculator to see which time period works better for you when it comes to affordability of monthly repayments. What works in favor of a shorter loan term other than having to pay lesser interest is that you build equity faster. This enables you to apply for a reverse mortgage or a renovation loan with ease, if you ever need one.

How Much Will You Save?

The usual rule-of-thumb suggests that you should refinance a mortgage only if the new interest rate is at least 1% lower than your existing interest rate. However, that’s as traditional a thought as the one that suggests requiring at least 20% down payment to buy a house, whereas it is possible to buy a house even without making any down payment.

Refinancing a mortgage might lead to savings even if there’s a 0.5% drop in the interest rate. Interest rates may vary from one lender to the next, which is why you need to compare as many alternatives as possible. The fees that you need to pay to refinance your loan require your particular attention, because these might have a significant impact on the overall cost. Some lenders offer better rates to borrowers who pay more toward closing costs.

If you have a 30-year loan of $300,000 at 4.5% interest, you would be paying around $1,520 each month in principal and interest. The total repayment would be around $547,200. If the same loan attracts 3.5% as interest, the monthly repayment drops to around $1,345, and the total repayment falls to around $484,970. This results in savings of around $175 each month, and around $62,200 over the course of the loan.

The Fees You Need to Pay

Just how much you end up paying in the form of refinancing costs depends on the state in which you live as well as the specifics of your mortgage. Typically, the cost to refinance a home loan hovers in between 2% to 5% of the loan amount. The costs come in different forms, such as:

• Prepayment penalty. When you refinance your existing loan, you are basically repaying it ahead of time, and replacing it with a new one. Repaying your loan before its term comes to a close might require that you pay a prepayment penalty. The penalty you need to pay might be a fixed amount, a percentage of the outstanding loan amount, or based on how long you’ve had the mortgage.
• Application fees. Depending on the lender you select, you might need to pay an application fee of anywhere between $75 and $300. This fee is usually non-refundable, even if you don’t qualify for the loan.
• Loan origination fees. These fees cover the administrative costs that a lender bears when generating a new mortgage. It can vary from 1% to 1.5% of the loan amount.
• Appraisal fees. Your new lender might want to get your house appraised to determine its existing market value. The appraisal fee varies between $300 and $500.
• Title search and insurance. Lenders rely on title searches to verify your homeownership status, and to check if there are any judgments or liens against your property. The insurance is in place to safeguard the search’s validity. This would set you back by $400 to $900.

Are You Refinancing to Change the Type of Mortgage?

A number of homeowners are thinking about converting the type of interest rates their mortgages attract – from adjustable-rate mortgages (ARMs) to fixed-rate mortgages, and vice-versa.

With ARMs, the interest rate during the initial period is lower than that of fixed-rate mortgages. However, subsequent interest rates hikes through the course of the loan can get the interest rate to exceed that of fixed-rate mortgages. In such a scenario, converting an ARM to a fixed-rate mortgage can lead to a noticeably lower interest rate, resulting in sizeable long-term savings.

The converse holds true for people who don’t plan to stay in their homes for long and want to convert their fixed-rate mortgages to ARMs. In this case, you could benefit through the existing low-interest-rate atmosphere as well as lower monthly repayments.

If interest rates fall further, opting for ARMs might make more sense. This is because the periodic adjustments on ARMs can lead to decreased rates and lower monthly repayments, thereby taking away the need to think about refinancing every time there is a drop in interest rates. This, though, would not be the case if interest rates start to rise again.

If you have an adjustable-rate mortgage and are planning on making a switch, you need to pay attention to a few important aspects. These include knowing what index your interest is linked to and how often the rate adjusts, as well as the first, the annual, and the lifetime cap. To determine if a fixed-rate mortgage is better for you, it is important to do the math ahead of time.

Are You Refinancing to Consolidate Your Debt?

Whether or not you should refinance your home to consolidate your debt depends on your existing financial situation. Refinancing your mortgage with the sole aim of consolidating your debt might not be in your best interest if you don’t have your finances in order. While repaying your high interest debt using proceeds from a low interest mortgage might seem like a logical move, there are pitfalls you need to consider.

One downside is that you basically transfer your unsecured debt from credit cards and personal loans into a secured debt that uses your house as collateral. If you end up defaulting on your repayments, you stand to lose your home. While not repaying your unsecured debt does come with unfavorable consequences, you don’t have to worry about losing your home.

Another problem comes in the form of debt that you feel you have repaid, but what you’ve essentially done is simply transferred it to another loan. With your credit cards seemingly all paid off, you might be tempted to spend again, and create even more debt in the process.

Has Much Has Changed Since Your Last Closing?

Has there been any significant change in your creditworthiness since the closing of your last mortgage? If your credit score has improved considerably, you might qualify for an even lower interest rate.  However, if your credit score has dropped, it might have an adverse effect on the rate you get. If you’re still thinking about refinancing, you might want to take some measures to fix your credit first.

The Pros and Cons of Refinancing

Refinancing a home loan is not a foolproof process, and it comes with its share of benefits and drawbacks.

Possible Pros

• Lower interest rate
• Lower monthly repayments
• Decrease loan term by paying it off sooner
• Change the type of mortgage you have
• Consolidate your debt
• Make use of the equity you’ve built to take cash out

Possible Cons

• Completely resetting the mortgage may lead to a longer loan term
• High closing costs
• Further drop in rates might result in you going through the entire process again
• Can take anywhere between 15 to 45 days to fall through

Conclusion

With interest rates showing slight signs of revival as of now, people who are thinking about refinancing their mortgages might have to make some quick decisions. However, there is no sure fire way to tell which way interest rates will move in the coming future. What can be said with certainty, though, is that a low interest rate atmosphere gives existing mortgage holders the ability to potentially save some money by going the refinancing way.

To make sure you choose the right lender, look at more than just the interest rate on offer. Other aspects that need your attention include the fees you need to pay, customer service levels, as well as flexibility in terms and conditions.

 

DISCLAIMER:

30-YEAR FIXED-RATE MORTGAGE:  THE PAYMENT ON A $200,000 30-YEAR FIXED-RATE LOAN AT 3.875% AND 80%LOAN-TO-VALUE (LTV) IS $940.14 WITH 0 % POINTS DUE AT CLOSING. THE ANNUAL PERCENTAGE RATE (APR) IS 4.026%. PAYMENT DOES NOT INCLUDE TAXES AND INSURANCE PREMIUMS. THE ACTUAL PAYMENT AMOUNT WILL BE GREATER. SOME STATE AND COUNTY MAXIMUM LOAN AMOUNT RESTRICTIONS MAY APPLY.

Mortgage rates fell to record lows in the first week of March. This is mainly because investors and the Federal Reserve fear an unchecked spread of the coronavirus, and the latter is looking for ways to create a stimulus.

As concerns about the effect of the virus on the global economy intensify, mortgage rates have dropped to their lowest ever according to Freddie Mac’s survey of mortgage providers, which began in 1971.

 

Number Speak

According to Freddie Mac, the 30-year fixed-rate mortgage stood at 3.29% in the week that ended on March 5. It fell by a significant 16 basis points from the preceding week when the interest rate was 3.45%. Around the same time last year, the interest rate was 4.41%. The previous record low was 3.31%, in November 2012, when the country was firmly gripped in recession. To put the existing interest rate further into perspective, the 30-year fixed-rate average was 8.15% at the turn of the last century.

The 15-year fixed-rate mortgage also experienced a fall of 16 basis points, dropping to 2.79%. However, the 5/1 adjustable-rate mortgage averaged at 3.18%, with a drop of just two basis points.

While the 10-year Treasury’s downward trend is evident by the recent drop in mortgage rates, it appears that the spread between the two is widening to some degree. Lenders, after all, have different reasons for not wanting to reduce rates rapidly. For instance, maintaining their margins remains crucial, and reducing rates would well eat into their profits.

 

The Lack of Homes

Even with the rates currently on offer in the market, getting a mortgage may work well for prospective home buyers. A problem, though, is that they need to find suitable homes.

A recent report shows that the inventory of homes for sale fell by 14% in January 2020. When it comes to homes priced below $200,000, the supply reduced by almost 20%. While a higher demand from buyers is one of the reasons for this drop in inventory, a bigger problem is that the country still hasn’t overcome the lackluster home construction activity that began during the recession. 

The problem was further compounded because several investors purchased single-family homes during the downturn and converted them into rentals.

There is no doubt that there has been a revival in construction activity since the summer of 2019, but it looks like it’s not happening fast enough to meet the rising demand. Besides, if the impact of the coronavirus on the economy worsens to a point where it affects the job market, the housing market might not be able to hold its own.

 

How Will Existing Conditions Affect Buyers and Sellers?

Opinion surrounding whether or not the drop in interest rates will encourage some homeowners to sell their homes is divided. This is because many people who have existing mortgages feel they are rate-locked. This means that the interest rate on their mortgage is so low, that it works as a deterrent when it comes to selling their homes and buying new ones.

The decision of a homeowner to sell a home is usually based on major life events, such as having children, retiring, or simply wanting to downsize. As a result, people who wish to sell their homes may well move forward with the process.

The overall state of the country’s economy might prevent some prospective home buyers from taking advantage of the existing low-interest-rate atmosphere. If the spread of the coronavirus affects the economy significantly, buyers might feel jittery and back out despite the probable savings. Given that buying a home is among the most important decisions people make in their lives, it is only normal to be cautious, or even nervous.

If interest rates fall below their existing record lows, borrowers may expect delays in getting mortgages. With lenders receiving more than usual applications, longer turnaround times might become the norm. Borrowers can do their part in the smooth sailing of their applications by keeping all the required documents in order.

 

The Effect on Existing Homeowners

Many existing homeowners might benefit by going the refinancing way, all the more so if there is a further drop in interest rates. Black Night, a company that provides integrated technology as well as data and analytics solutions, estimates that over 11 million homeowners in the U.S. can save an average of around $270 per month if they refinance their mortgages.

Existing mortgage holders whose credit scores are over 720 any are paying anywhere over 4% as interest are ideal candidates for refinancing.

Waiting for much longer to get an existing mortgage refinanced might not be the best way forward, as there is no surety that rates will drop any further. Several lenders are already stretched beyond their capacity in terms of the number of applications they can process. While some have boosted hiring because of the rise in demand, others are being wary of what they will do with the extra staff when the rates increase in the future.

In the event that the spread of the virus causes the government to issue a shelter in place orders, getting to the lender would be a challenge. In such a scenario, lenders will need to devise ways to manage all the work remotely, without causing any friction in their systems.

 

Should You Refinance?

Refinancing a home loan is not foolproof. Bear in mind that getting a new mortgage comes with its fair share of fees, and making a wrong decision might have a negative impact on your potential savings. Fortunately, paying attention to a few simple aspects gives you the ability to determine if refinancing might work well for you.

 

Time Period

Repaying a mortgage is usually a long drawn affair. In addition, most of the money you repay during the initial period goes toward the interest, and not the principal. Consequently, time is an important factor when determining if you should consider refinancing your existing mortgage.

Ideally, the time you plan to keep the loan should be long enough so that your monthly savings exceed the closing costs you will incur, which may vary noticeably depending on the fees. If you plan to move into a new home within the next five years, you might be better off sticking with your existing mortgage, taking into account the fees you will need to pay.

If you plan to stay in your existing home for years to come and have a 30-year mortgage, you might benefit significantly by switching to a 15-year mortgage. While you will need to make a larger monthly repayment, you will save a tidy sum in the form of interest you don’t need to pay. With a 15-year mortgage, you also get to build equity in your home faster. This gives you the ability to get a renovation loan or a reverse mortgage in the future, should the need arise.

 

Savings

If you hope to save money by refinancing your mortgage, the new interest rate should be at least 50 basis points lesser than the interest rate of your existing mortgage. Rates offered by different lenders are known to vary, which makes it important that you compare your options well. While interest rates need your attention, you also need to take into account how much you will need to pay in the form of fees, as these affect overall closing costs. If you are willing to pay more as closing costs, you may look forward to an even more competitive interest rate.

 

Mortgage Insurance

People who take home loans are required to pay mortgage insurance in two scenarios. One is if they get conventional loans and pay less than 20% as a down payment. The other is when borrowers take the Federal Housing Administration (FHA) loans.

If you’re thinking about refinancing, you need to determine how much equity you hold in your home and the types of loans you may get. Refinancing does not make much sense if you hold less than 20% equity in your home, because you will then need to get mortgage insurance. Without mortgage insurance, you might increase your overall savings when refinancing even if you fall outside the 50 basis points threshold.

In case you don’t have 20% equity in your house, you might still consider refinancing your mortgage if you have adequate savings that you can put toward a cash-in refinance. This way, you meet the 20% down payment requirement and do not have to get mortgage insurance.

 

Financial Stability

Data released by Lending Tree shows that one in four applications for refinancing failed to meet the cut in 2018. A very high debt-to-income ratio was the reason behind more than a quarter of the rejected applications. Around 25% of applications were rejected because of poor creditworthiness. More than 15% were rejected because the appraised value of homes was too low when compared with the requested loan amount.

As a prospective candidate for refinancing, you need to have a desirable debt-to-income ratio as well as a good to excellent credit score. The best place to start is by reducing your non-mortgage debts that come in the form of credit cards, personal loans, and auto loans. You also need to take a close look at your credit report. If you find any errors, you need to get them corrected as they affect your credit score negatively.

Improving your credit score before refinancing your mortgage not only increases the possibility of approval, excellent scores are also privy to better interest rates.

 

Choosing the Right Lender

Comparing different lenders is crucial when looking for a mortgage because not all suit the needs of different people equally well.  Aspects that you need to consider include:

 

Interest Rate

No matter whether you are a first-time homebuyer or a homeowner looking for refinancing alternatives, there is a good chance that you will get different interest rates from different lenders. Calculating the effect of the interest on the overall cost of the loan shows you how even a seemingly small difference in interest rates can lead to a significant dollar-value saving. Unfortunately, not many people compare the interest rates offered by different loan providers.

 

Fees

The fees you need to pay may vary considerably depending on the lender you select. This aspect requires your particular attention if you plan to refinance your mortgage because the fees you end up paying might eat into any probable gains. Mortgage fees can come in the form of application fees, credit report fees, loan processing fees, closing fees, and document preparation fees.

 

Customer Support

Given the typical long-term nature of home loans, you need to work with a mortgage provider that does not falter on the customer support front. One way to determine how any lender fares in this department is to take a look at what previous customers have to say. You also need to work with a lender that is easy to contact, both online and over the phone.

 

Flexibility

If the effect of the coronavirus amplifies, you might need to limit your search to lenders that carry out the entire loan application process online. Fortunately, several lenders already give their customers the ability to upload their documents using the internet.

Some lenders are known to provide flexible repayment schedules, giving borrowers the option to make weekly, fortnightly, or monthly payments. Depending on your lender, you might be able to make extra repayments without incurring added fees, and this also applies if you wish to repay your loan ahead of schedule.

 

Conclusion

If you’ve been thinking about buying a home, now might be as good a time as any, especially if you wish to live in the house you purchase. The same also holds if you plan to refinance your existing mortgage. There is no telling how long the coronavirus effect on the economy or interest rates will last. On the other hand, it is only a matter of time before interest rates begin their upward movement again.

 

DISCLAIMER:

30-YEAR FIXED-RATE MORTGAGE:  THE PAYMENT ON A $200,000 30-YEAR FIXED-RATE LOAN AT 3.875% AND 80%LOAN-TO-VALUE (LTV) IS $940.14 WITH 0 % POINTS DUE AT CLOSING. THE ANNUAL PERCENTAGE RATE (APR) IS 4.026%. PAYMENT DOES NOT INCLUDE TAXES AND INSURANCE PREMIUMS. THE ACTUAL PAYMENT AMOUNT WILL BE GREATER. SOME STATE AND COUNTY MAXIMUM LOAN AMOUNT RESTRICTIONS MAY APPLY.